By Catherine Yoshimoto, director, product management
Every Russell 3000 ICB Supersector has bounced back from March 2020 lows, but none quite so dramatically as Automobiles and Parts. For the 3/31/20 – 8/31/20 time period, Autos and Parts delivered returns that were nearly triple those of the next highest performing Supersector. This performance success story has been largely shaped by two themes: industry innovation and the pandemic-driven do-it-yourself car maintenance trend.
Autos and Parts leads the Supersector pack by a longshot
The onset of the pandemic in March took a widespread toll across all Russell 3000 ICB Supersectors, but fortunes turned as US equities set out on a path to recovery in April. While all Supersectors have since rebounded, Autos and Parts returned a remarkable 185.1% for the 5-month period ending 8/31/20.
As shown, while the Retail Supersector posted a strong return of 62.3% for the period, this represented only a fraction of what Autos and Parts returned—making for a considerably distant second.
Auto innovation a key driver
Once widely viewed as an industry on the decline, innovations such as automated and electric cars have recently breathed new life into the automobile sector. We can see evidence of this trend if we look at Autos and Parts performance on a security level over the past five months. As shown below, Tesla—the pioneer maker of “premium electric vehicles”—was largely behind the surge in Autos and Parts performance, returning 375.5% over the time period.
While more traditional auto companies such as Ford and GM performed well for the 5-month period, they still underperformed the broader Russell 3000 Index return of 49.1%. As such, it was primarily Tesla that propelled the Supersector’s performance. And if we look over longer time periods, the growth in the company’s price is nothing new—Tesla was added to the Russell 1000 in September 2010, and in the decade since its June 2010 IPO has grown to become the largest auto company in the world by market capitalization1.
More cars getting at-home makeovers
The pandemic has reshaped consumer behavior in many ways—and a tendency to do more car maintenance and repair at home is among them. As US lockdowns became more widespread in April, auto parts retailers benefited from heightened interest in at-home projects such as improving the look and function of cars. Stimulus checks went toward such projects, boosting auto parts sales—particular those related to vehicle aesthetics such as putty, sandpaper, and paint. As a result, the Auto Parts ICB Subsector returned 58% for the period.
While the auto sector has long been considered a struggling industry, the past five months tell a different story. Whether innovation reinvents the industry over the longer-term—or whether the DIY trend continues—remains to be seen. However, the recent ICB Supersector performance demonstrates how the pandemic hasn’t disrupted all innovation, and has even given rise to trends that have benefited areas of the US equity market.
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1 Source: FTSE Global Total Cap Index, as at 16th September 2020.
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