Fidelity Automotive Mutual Fund Shielded from Toyota Drama

Includes: ALV, BWA, CTS, F, JCI, TM
by: Don Dion

Though the troubles facing Toyota Motors (NYSE:TM) will likely linger well into the near future, I still stand by my buy recommendation for the Fidelity Select Automotive Fund (FSAVX). None of the culprits involved in the Toyota debacle have any direct influence on the fund’s performance.

This week, Toyota announced that they had discovered a fix for the faulty accelerator pedal that has warranted massive recalls for many of the company’s models including the widely popular Corolla and Camry. Despite finding the cure to the problem, shares of the car giant still continued its freefall during Tuesday’s trading. Apparently, fixing the company’s reputation will prove to be a whole different challenge.

As I’ve mentioned before, while FSAVX is designed to provide investors with exposure to the broad auto industry, it lacks any strong exposure to the actual automakers themselves. Ford (NYSE:F), the only big name car company, represents only a small slice of the fund’s total portfolio. Instead, the fund relies on the performance of auto parts suppliers like Johnson Controls (NYSE:JCI), BorgWarner (NYSE:BWA) and Autoliv (NYSE:ALV), which have shown impressive strength in past months.

Still, even with supplier-focused investment strategy, FSAVX is protected. CTS Corp (NYSE:CTS), the source the faulty accelerator is absent from the fund’s index.

Although there is no direct link between FSAVX and Toyota’s drama, the fund has still taken a hit as investors, fearing the car industry in general, make for the exits. However, I advise investors currently holding the fund to avoid jumping ship as continued growth is likely to ensue when this issue blows over.

New investors, on the other hand, may want to keep an eye on the downturn as the small dip may prove to be an attractive window to jump into this strong fund for the long haul.

Disclosure: No positions

About this article:

Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here