Fund Feeds on Clunkers

Fidelity Select Automotive is up 100% year to date thanks to Uncle Sam's Cash for Clunkers program and Ford's recent run.
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Like a phoenix rising from the ashes, the United States car industry has bounced back spectacularly from earlier this year when the sector was at the verge of becoming nothing more than a memory.

Fidelity Select Automotive

(FSAVX) - Get Report

, possibly the only pure play on the auto industry available, has been perfectly positioned to gain as auto manufacturers, sellers and parts suppliers have all headed skyward.

Currently, the industry's stellar performance has sent FSAVX up more than 100% year to date for the period ending Aug. 10. With continued assistance from a number of government stimulus efforts, it is likely the rally will continue.

FSAVX was initially launched in 1986. The fund has since seen its share of managers, but since February 2009, Fidelity Select Automotive has been managed by Michael Weaver.

During his short stint at the helm, he has witnessed the fund hit rock bottom as big name auto companies have turned to bankruptcy, federal aid, and mergers as their businesses have fallen victim to tough economic times. However, he has also commanded the fund through its current rally. The most recent performance of FSAVX definitely earns Weaver and his team the 0.56% fee charged on the fund.

FSAVX is designed to follow the entire automotive sector. However, most of the movement of the fund can be attributed to the companies making up its top ten holdings. These firms currently account for almost 75% of the fund's total assets.

During the crunch that left big name car manufacturers gasping for air, FSAVX benefited by not having its top positions littered with big-name car manufacturers like

Ford

(F) - Get Report

, and

General Motors

. Instead, by holding smaller supply companies such as

Johnson Controls

(JCI) - Get Report

,

Tenneco

(TEN) - Get Report

,

Penske Automotive Group

(PAG) - Get Report

and

BorgWarner

(BWA) - Get Report

.

FSAVX was able to stay afloat during the sector's recent downturn.

Harley-Davidson

(HOG) - Get Report

is currently the only household name auto manufacturer listed as a top-10 holding.

While the fund benefited from its limited exposure to the volatile Big Three on the downside, it gained from the recent rally via Ford, the last remaining U.S. carmaker. FSAVX's Top 25 includes Ford, which makes up 1.5% of the fund's total holdings.

Government intervention has been a huge contributor to FSAVX's recent rally. The Cash for Clunkers program has led once floundering Ford to its first monthly gains since 2007. Now, with the Senate's approval of an additional $2 billion, the program is getting its second wind.

It will be interesting to see if Cash for Clunkers will be able to last until its scheduled November wrap-up. Up until that time, there is no reason that Ford won't continue to be lifted along the way.

Johnson Controls, Fidelity Automotive Select's number one holding, has also benefited from the government's generous purse. Make sure to check out my video to learn about the recent developments of JCI.

At a time when little hope was left for the U.S. car industry, FSAVX boldly stuck to its guns, and it has paid off in a big way. In 2009 alone, the sector tracked by the fund has taken a dramatic fall, hit bottom and has rebounded to pre-crisis levels.

However, before throwing all of your money into FSAVX, investors should be cautious of the long-term strength of this fund. While the government's intervention has been a saving grace for the industry, it will be interesting to see if the sector can remain standing when its federal crutch is removed.

At the time of publication, Dion was long FSAVX.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.