2023-11-09 11:49:43 ET
Summary
- The KraneShares Electric Vehicles and Future Mobility Index ETF aims to provide exposure to companies shaping the future of mobility.
- The KARS ETF focuses on various aspects of the emerging EV ecosystem, including EV production, autonomous driving, shared mobility, and electric infrastructure.
- The ETF offers potential advantages such as exposure to the EV boom, access to emerging market innovators, and diversified exposure across sectors and regions. However, the momentum for KARS is currently lacking.
The future of mobility is rapidly evolving, with technology and sustainability at the helm. Technological innovations such as electric vehicles ("EVs"), autonomous driving, and shared mobility, coupled with increasing global sustainability efforts, are transforming the transportation landscape. This is an undeniable longer-term theme. But investing to take advantage of that is harder than the narrative would have you believe. The KraneShares Electric Vehicles and Future Mobility Index ETF ( KARS ) is an interesting fund, but the momentum just isn't there. As a matter of fact, relative to the S&P 500 (SP500), it's gone roundtrip.
Investing in KARS: The Pathway to Future Mobility
KARS is a thematic exchange-traded fund, or ETF, that provides exposure to companies actively involved in reshaping the future of mobility. Specifically, it tracks the performance of the Bloomberg Electric Vehicles Index, a benchmark that encapsulates companies engaged in the production of electric vehicles and their components, as well as other initiatives that may redefine the future of transportation.
The ETF's investment strategy encompasses various facets of the emerging EV ecosystem, including EV production, autonomous driving, shared mobility, lithium and copper production (essential for EV batteries), lithium-ion and lead-acid batteries, hydrogen fuel cell manufacturing, and electric infrastructure. This broad-spectrum approach ensures that KARS captures the dynamic and interconnected nature of the future mobility industry.
Breaking Down the KARS ETF: Top Holdings and Sector Exposure
KARS holds a diverse portfolio of companies across several sectors, reflecting the multidimensional nature of the future mobility landscape. The fund's sector exposure is primarily geared towards consumer discretionary, materials, industrials, and information technology sectors.
Among its top 10 holdings, the fund features several key players in the EV sector. Tesla, Inc. (TSLA), the global leader in EV production, holds a significant spot in the ETF's portfolio. Other notable holdings include Li Auto Inc., a leading Chinese EV manufacturer, and Contemporary Amperex Technology, the world's largest provider of EV batteries. Panasonic Holdings, a major player in the EV battery sector, and Albemarle Corporation (ALB), the world's largest lithium producer, also form part of the top holdings, underlining the fund's focus on the EV supply chain.
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The Investment Case: Why KARS?
Investing in KARS offers several potential advantages:
1. Exposure to the EV Boom: With EV adoption accelerating globally, KARS provides an opportunity to tap into this burgeoning market. As per Bloomberg New Energy Finance, EVs are projected to account for 57% of new car sales and over 30% of the global car fleet by 2040. This trend is further underscored by the global EV market's valuation, which reached $436 billion in 2022 and is projected to touch $1.4 trillion by 2027.
2. Access to Emerging Market Innovators: KARS holds a significant percentage of Asian companies, particularly those from China, the world's largest EV market. This exposure provides investors with an opportunity to benefit from the rapid EV adoption in these markets and the innovative technologies being developed by these companies.
3. Diversified Exposure: KARS' diversified portfolio across multiple sectors and regions reduces company-specific and geographic risks, making it a relatively safer bet in the volatile EV industry.
4. Long-Term Growth Potential: As the world shifts towards more sustainable transportation solutions, the companies in KARS' portfolio stand to benefit from increased demand for their products and services, thus offering long-term growth potential.
5. Hedge Against Traditional Auto Stocks: For investors with significant exposure to traditional auto stocks, KARS can serve as a hedge, given the disruptive potential of EVs and emerging mobility technologies.
Again - all of this is compelling, and I do believe in this as a long-term investment thesis. But the momentum as mentioned earlier just isn't there.
Why has the fund not done well despite the strong story behind it longer term? The simplest answer is the right one. This isn't a U.S.-centric ETF. 64% of the holdings are stocks in Asia, with 37% total being in China. This matters a lot, and attribution-wise explains the underperformance broadly given investor risk aversion when putting money to work in China stocks, against a secular cycle that has not helped international investors.
Bottom line? Good fund - right space - wrong time - avoid. I think we need to see some momentum on the international side for things to really pick up for the fund, and better price behavior overall. Not one for me at this point in the cycle, but not one to ignore forever.
For further details see:
KARS: Right Theme, But Poor Momentum