The market began the week with mixed numbers, as some Fed officials called for a tapering of bond buybacks.
The market indices ended the day mixed.
The S&P 500 and DOW Jones hit new records by the close today, while the NASDAQ slipped slightly into the red. There hasn’t been much happening today that moved the market, and it shows in the indices.
One piece of noteworthy news was on The Wall Street Journal about some Federal Reserve officials beginning to call for a tapering of bond buy-backs next month at the Fed's upcoming meeting. Bond purchases are meant to support the economy by encouraging lending and spending, and tapering those buy-backs is part of returning to a more normal economy. However, opinions remain split on whether this step should be taken so soon or not. We still have to wait for the Fed's meeting to hear about their official stand on the matter. Let's keep an eye on them.
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The Electric Vehicle megatrend is shaping the future, and two EV ETFs may be a way to invest in it - IDRV and BATT.
Electric Vehicles, or “EVs,” are one of the megatrends shaping society. It's no accident that EV stocks created so much buzz in the market last year. For one, the EV battery and vehicle costs are declining rapidly, encouraging automakers to pledge to fully or partially transition to EV. Also in favor of electric transportation is climate change-friendly policies by governments around the world. These are creating the infrastructure required to make the transition from combustion engines to EVs. For example, the Biden administration's infrastructure bill focuses on developing EV charger networks across the U.S.
That's why the EV megatrend is one of the trends every investor should consider in his or her portfolio, especially if you are investing for the next decade or so.
But, it's very difficult to decide which EV stock is going to win the market. Is it pure-play car makers like Tesla (TSLA) or old-timer companies such as Volkswagen (VW)? When it comes to megatrends that are in early innings, and it's hard to figure out which company would be the winner, one strategy is to invest in a well-managed ETF. Ideally, one that is putting a diversified basket of such stocks together and charges a reasonable fee.
I took a look at a few EV-oriented ETFs today. Here are two of them I found worth your attention:
The iShares Self-Driving EV and Tech ETF (IDRV) is a fund that tracks notable transportation companies that develop autopilot systems, and of course, electric vehicles. I came across this ETF on Nio’s (NIO) Stock Card. NIO is one of the top 25 holdings of this fund. Under the Valuation section, we can see that this fund is considered cheap to buy right now and has a great forecast for growth in the future. Scrolling down even further, it looks like the ETF gives you a wide range of exposures regarding countries, sectors, and market cap. This can be better than investing in something like the S&P 500.
Another prominent ETF is the Amplify Lithium & Battery Tech ETF (BATT). This particular fund is focused on lithium battery technology that powers the EV industry. In the same sense that gas mileage is a major selling point for vehicles, the same goes for electric car batteries. Investing in the future of lithium batteries gives you plenty of exposure to the EV boom, and this ETF is a great opportunity for that. Once again, you can see that BATT is reasonably priced but has reasonable risk as well. Make sure to pay attention to the details here! If you expand the risk section, you’ll see that the “turnover” rate for stocks here is 131%, meaning that the fund managers are doing more trading than holding. Just something to be aware of before you park any money there!
If you have a favorite EV ETF, let me know in the comments. I'm still looking to find the best one to invest in and benefit from this megatrend.
EV leaders' stock price drop shows how Tesla and NIO plan to compete with global automakers that are entering the EV sector rapidly.
Speaking of the lithium battery ETF, one of its top 25 holdings happens to be Nio Inc. (NIO). Nio is one of the most prominent EV companies in China. Today, Nio shares were down nearly 6% after one of its SUVs was reported to have crashed while driving on autopilot, killing the driver. On Nio’s Stock Card, you’ll see that it has great sales growth and a strong balance sheet. Despite this, setbacks like today are inevitable as the driving systems are refined. It’s hard for investors and regulators to brush off serious issues like these. Today was not the hottest day for the stock, nor other EV companies, which may mean a chance to pick up shares if you can tolerate volatility like today.
Tesla (TSLA) also fell in tandem with Nio today, dropping more than 4%. This is due to a similar situation in the U.S. The National Highway Transportation Safety Administration, or NHTSA, filing an investigation into Tesla’s autopilot feature. The filing cites at least 17 injuries and a death concerning the Autopilot system developed by the company. The NHTSA also referred to 11 instances where a Tesla driving on Autopilot hit emergency responders or their vehicles.
An exciting takeaway on both NIO and TSLA is that the EV megatrend and the autonomous or autopilot developments are merging, as leading EV makers try to differentiate themselves from old-time car makers who are entering the EV market in droves. You can find Tesla as a top 25 holding of the iShares Self-Driving EV and Tech ETF (IDRV) that I mentioned earlier.
The case to invest in NIO and Tesla is shifting from EV makers to autonomous car makers, which is a noteworthy change if you are holding these stocks. It's good that they are making a move, but it also means many more years of volatility as these companies sort through the challenges related to autopilot technology.
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