These ETFs Offer Alternative Ways to Play Red-Hot Nio Stock

I read a recent article about Tesla (NASDAQ:TSLA) being under pressure from Nio (NASDAQ:NIO) in China. It recommended five electric vehicle (EV) stocks. NIO stock wasn’t one of them. 

A Nio (NIO) sign and logo on a tan concrete building.
Source: Sundry Photography /

As someone who’s been on the Nio bandwagon since it fixed its funding problems in April 2020, I will continue to recommend investors with a long-term horizon of 3-5 years buy Nio stock.

Even after gaining 64% in the span of six weeks.   

However, given it’s come a long way in a short period, I’ve got an alternative approach to provide a better risk-to-reward proposition. 

Here’s how. 

NIO Stock and Blank

One of my favorite angles when writing articles is to provide readers with options. In this case, it’s to get you into Nio without feeling as though being late to the party will result in a loss rather than a gain on your investment.

So, for example, you’re thinking of investing $5,000 in Nio. At the current time, that’s good for approximately 100 shares.

Reflecting on what the MarketWatch article said about the EV stocks to buy, you could spread your bets a little by cutting the Nio purchase to $2,500 while using the other half to buy something less company-specific.

Exchange-traded funds (ETFs) are the natural place to start your search.

However, do you go with something EV-specific such as the KraneShares Electric Vehicles & Future Mobility ETF (NYSE:KARS)? Nio is the top holding with a weighting of 6.27%.

Or, do you throw a wider net by looking at the First Trust NASDAQ Global Auto Index Fund (NASDAQ:CARZ), which invests in automobile manufacturers? 

Two things to know about CARZ.         

First, Nio is not one of the 34 holdings. Second, at the end of July, both the index tracked by the ETF and the fund’s name will change.

As of July 27, CARZ will become First Trust S-Network Electric & Future Vehicle Ecosystem ETF. It will track the performance of the S-Network Electric & Future Vehicle Ecosystem Index. 

While the holdings haven’t been finalized, the index will contain approximately 100 companies involved in electric and autonomous vehicle technologies. I can’t say for certain, but I would imagine Nio will be one of the 100.

Interestingly, the old CARZ ETF would be a perfect way to play Nio, with 50% of your $5,000 invested in the Chinese EV company and 50% in CARZ. Alas, that option’s going bye-bye. 

Cleaner Energy

Another possibility is to play on the clean energy angle. For that, we have three options.

First, there is the VanEck Vectors Low Carbon Energy ETF (NYSEARCA:SMOG). It invests in 71 renewable energy stocks by tracking the performance of the MVIS Global Low Carbon Energy Index. Nio is the sixth-largest holding with a weighting of 5.65%.

The second option is the First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN). It invests in 53 clean energy stocks by tracking the performance of the NASDAQ Clean Edge Green Energy Index.

Nio is the top holding with a weighting of 9.09%. Tesla and Xpeng (NYSE:XPEV) round out the EV stocks in their top 10 holdings.

The final possibility makes the list because I absolutely believe in the power of equal-weighted ETFs. It brings smaller companies into the mix without compromising performance. 

The Invesco WilderHill Clean Energy ETF (NYSEARCA:PBW) tracks the performance of the WilderHill Clean Energy Index, a modified equal-weighted index that’s reconstituted and rebalanced quarterly. 

Nio is currently the sixth-largest holding with a weighting of 2.01%. The largest holding is ChargePoint Holdings (NYSE:CHPT). It has a weighting of 2.26%, just 25 basis points higher. 

From a performance perspective, SMOG has a one-year total return of 103.7% through June 28, QCLN’s return is 148.8%, and PBW’s is 140.7%. 

I’ll take those kinds of returns every day of the week.

The Bottom Line

I know it seems unorthodox to mix and match stocks and ETFs, but institutions do it all the time.

It’s a great way to take a position in an entire industry or sector when you’re either unsure about the long-term prognosis for a particular company or, as is the case here, you’re not confident about the near-term direction of the company’s share price. 

Nio’s come a long way, and even though I believe it will keep putting up strong delivery numbers, it sometimes makes sense to play it safe.

Long-term, however, I continue to like Nio stock.   

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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