Lithium Gets Its Own ETF

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Not a rare earth metal, but certainly one to watch, lithium gets its day in the limelight as Global X Lithium, an ETF, will launch later this week. Global X Lithium will track lithium producers and battery makers. The idea for the fund came from R. Marcelo Claure, a Bolivian businessman and founder of Brightstar Corp a $3 billion distributor of hand-held devices, according to the WSJ. Bolivia contains the largest deposits of lithium, so it’s no surprise that the idea for the fund came from that country. Claure, an investor in MC Capital Advisors, a hedge fund, approached Global X Management to start the ETF.

Back in May, MetalMiner reported on the first rare earth metal ETF fund that makes actual investments in firms that produce REEs. The Global X Lithium fund works more like a traditional ETF fund in that the fund will track an index comprised of key lithium producers and battery makers (and their stock prices). The WSJ suggests other rare earth metal ETFs are on the way, including one for gallium and another for selenium.

What we find particularly interesting while watching the development of these funds involves the rationale behind the funds. We understand those rationales to include:

  1. General demand for ETFs according to the Wall Street Journal, “there were 914 listed ETF’s at the end of June up 21% from a year ago¦.Since 2007, ETF’s have raked in $480 b in net cash inflows, bringing total assets to $780b.”
  2. Trend in partnering amongst companies interested in creating markets for “obscure materials for which there is rising demand
  3. Creating physical inventories via financially traded products to supply a growing market
  4. And as a result of three above, the creation of the unintended (or intended) consequence of seeing the price for some of these rare earth metals increase (which will result in more attractive mining economics) which is a good thing if you believe the demand for these metals will increase over time

That fourth point is something my colleague wrote about earlier this morning. And as a result of all four trends listed above, we suspect the number of ETFs in the rare earth metals, minor and related metals markets will continue to grow. What we will monitor from the sidelines, however, like other ETFs, include the number of new funds set up as an index to track underlying producers vs. ETFs that actually invest in physical inventories. Not to minimize the former, but they merely require capital. The latter actually move markets and that’s why any watcher of rare earth metals might wish to play close attention to what has happened with the PGM group of ETFs (which do invest in the underlying metal) and the previously announced aluminum ETF (which will take on physical inventory of that underlying metal) set to become operational later this year.

–Lisa Reisman

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