IDRV ETF: Mostly Just Consumer Discretionaries Right Now; Hard Pass

The iShares Self-Driving EV and Tech ETF (NYSEARCA:IDRV) is mostly just a collection of stocks that could be important in EV and self-driving, but are not particularly moved by headlines around self-driving, which is a pie in the sky that hasn’t been priced into any of these stocks with the notable exception of one notorious automaker. Overall, the exposures end up being a lot of automotive companies and chip companies, as well as other industrials or high beta names that you don’t want in the current market. Hard pass.

IDRV Breakdown

Let’s have a quick look at some of the holdings.

Seem familiar? They should; it’s some of the largest and most hyped names in equity markets with the exception of the automakers.

The idea behind IDRV is pretty self-evident which is that it holds companies that will play a role in the supply chain for the self-driving trends and also EV. They’ve gone quite deep with this ETF including chemical companies like Albemarle (ALB), a host of chipmakers including more specialised ones like Nvidia (NVDA) which would be providing (presumably) the GPUs to power the self-driving AI. It also includes companies like ABB Ltd (ABB) which would provide things on the manufacturing side.

But it is all a bit silly.

With self-driving being so far off, who knows if by then GPUs will still even be used for training and running AI. Self-driving is to do with computer vision, which is a whole load of dense matrix calculations. They already have tensor processing units (TPUs) and who knows what else will come in the 10-20 years it’ll take for self-driving to be a commercial product that will actually work in the futuristic way it is intended. Moreover, stocks like Autoliv (ALV), tyre companies and others will not see the magnitude of their markets grow when cars become self-driving. If anything, Autoliv and its seatbelts will suffer if car crashes become less frequent. Certainly Autoliv won’t have particularly different prospects if all cars go electric either – they all still need seatbelts. Also chemical companies that supply normal cars will supply the same things to self-driving cars. Few will specifically benefit from self-driving or EV. In fact, to get something more levered to the EV trend you’d find more strictly related stocks in a commodity portfolio with things like copper and lithium miners or specialty chemical companies.

The point is that self-driving is a pie in the sky, and the only stock that might respond to those headlines is Tesla (TSLA), but the TSLA stock has so many hype factors that determine its price as algorithms battle it out on markets using sentiment analysis and other text data from Musk’s twitter account and maybe Reddit. EV is very actual, but the matter still stands which is that many of these companies would be changing out EV for their current ICE-based markets. It’s not really an impulse for the expectations of many of these stocks to grow. Semiconductors are already very demanded in ICEs; it won’t be all that different once cars are on powertrains.

Conclusions

That was us complaining about the concept mainly, and those complaints are pretty valid. The ETF does become a pretty generic set of hype names like FANG stocks or stocks anyone knows have relevance to future trends. But what it also ends up being is very levered to employment and macro realities because of the consumer discretionary exposure. For some reason, the ETF has a bunch of traditional car manufacturers, most of which are suffering on account to the shift to EVs because of the newfound CAPEX burdens. It also has a bunch of semiconductor names. As a consumer durable that even depends on financing customers to buy them, automotive is one of the last places we’d be in the current economic environment, where we think we are going to get declines in employment on top of rate hikes. Furthermore, semiconductor inventories, despite the shortages which are likely mostly logistics driven, are rising massively signaling an incoming glut. 45% of the ETF is consumer discretionary, including 5% of the very volatile Tesla. 35% is IT which is very much mostly chip makers.

No thanks. Semi is exposed to consumer electronics trends and consumer confidence is virtually gone, and automotive is rate sensitive, much like housing. We hard pass on IDRV.

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