How Can You Create A Low-Volatility An Auto Portfolio?

Motif Investing constantly looks for “trends, ideas and world events that could create an investment opportunity.”

It then selects 20 to 30 related stocks and builds portfolios, which weigh the stocks based on their exposure to a particular idea.

Within the industrials and transport segment, one motif offers low volatility, the lowest valuation and relatively modest returns: new cars.

That New Car Smell

Motif Investing explains the thesis behind the space:

The last recession made the average car on a US road older. However, “as existing cars age and maintenance costs rise, consumers may actually find it cheaper to replace them with newer models.”

“In 2013, worldwide vehicle sales rose 5.2% from prior year, supported by a 13% increase in North America. This motif provides exposure to companies that make cars, auto parts and related components that could be in need as more consumers swap their old car keys for new ones.”

The motif allocates 70.5 percent of assets to Auto Manufacturers stocks; 15.8 percent, to companies that provide products for the interiors of vehicles; 7.3 percent to diversified auto-related companies; 4.3 percent to powertrain systems manufacturers; 1.1 percent to companies that provide vehicles’ body structures; and 1 percent to tires makers.

Source: Motif Investing

The chart above illustrates the return of this motif/portfolio over the past year, compared to the S&P 500. While the motif surged 8.3 percent, the S&P 500 rose more than 9.7 percent.

The top stocks by allocation are:

• Honda Motor Co Ltd (ADR) HMC, 25.3 percent
• Toyota Motor Corp (ADR) TM, 24.5 percent
• General Motors Company GM, 10.8 percent
• Autoliv Inc. ALV, 9.0 percent
• Tesla Motors Inc TSLA, 4.5 percent
• Tata Motors Limited (ADR) TTM, 4.4 percent
• Delphi Automotive PLC DLPH, 4.3 percent

Among automakers, Ford Motor Company F is the least favorite. Only 1 percent of the portfolio is dedicated to the North American giant.