Clever New Lithium ETF, but is it Green?

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A fascinating article in the ETF Daily News sheds light on the increasing trend of ETF management companies cooperating with producers and investors to create funds. And, as we previously reported, a Bolivian investor R Marcelo Claure had been looking for a way to make a broad-based bet on lithium, lacking a ready vehicle a hedge fund in which he invested encouraged Global X Management a manager of ETF’s to set one up. The result is the new Global X Lithium fund.

Quoted in ETFdb Bruno del Ama, CEO of Global X Funds promoted the fund as follows, “The Global X Lithium ETF is an efficient way to invest in what we refer to as a “green commodity because of its direct correlation to the renewable energy market such as electric cars and energy storage, he said.   The fund offers investors a way to establish exposure to lithium through stocks of companies engaged in the discovery, extraction, refining, and sale of the metal. Fine we would say but is it really creating exposure to environmental or green industry growth? The suggestion is that because lithium is the favored metal for electric car batteries it creates exposure to that market but the reality is lithium ion batteries are in their infancy for EV’s, much more nickel and cadmium metal is used in “green” Prius hybrids. More to the point, the vast majority of lithium isn’t used in car batteries anyway, it is used in a host of other applications. What an investor is really buying with the Global X Lithium fund is, for the next few years anyway, exposure to the consumer products market where lithium is used in laptop computers, cell phones and ipods. Lithium is also used as an alloying element with aluminum in aerospace alloys, not exactly a green industry.

The fund invests in miners and processors among other industry players but is heavily skewed towards Chile as a source of supply Chilean SQM makes up 20% of the weighting. The US, in the form of a number of processors, makes up about 50%, with Japan at 10%. That doesn’t leave much room for new supply sources and new consumers. The weighting is very much toward established players in the lithium market. That makes good sense from the point of view of creating a reliable investment vehicle but it isn’t really a bet on new green environmental opportunities, or won’t be until those applications become meaningful in the overall consumption of lithium.   We are not suggesting Bruno del Ama is guilty of miss-selling, his lithium fund will no doubt prove popular and we hope successful. It does fill a gap for those wanting to invest in the future for lithium that is much safer than buying just mining shares but the short term future is bright enough for lithium’s use in all kinds of consumer products without having to jump on the green bandwagon.

–Stuart Burns

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