Could Lithium Become The Best Performing Commodity

Most investors know of the little car company called Tesla (TSLA) and how it is leading the industry in electric vehicles (EV’s). But what some may not know is that every single major car manufacturer around the world is attempting to compete with Tesla and produce EV’s themselves.

This increase in electric vehicle availability and production in the future is great for reducing carbon emissions caused by standard gas combustion engines. Furthermore, if the EV revolution takes hold like most believe it will, the impact on the oil markets will certainly be felt, but lower demand for one commodity will likely mean higher demand for another.

Lithium is a key component in the namesake battery, ‘lithium-ion-battery,’ which by the way, is currently the main battery used for high powered electronics and EV’s. While it's evident that small hand-held electronics (smartphones, tablets, laptops) continue to grow in popularity worldwide, those devices don’t require the same amount of lithium as what some predict the electric vehicle market will consume in just a few years.

In 2018 EV sales rose 81% over sales figures in 2017, this was primarily due to Tesla’s Model 3 hitting 139,000 units sold. The Model 3 had such a significant impact on the market due to its low cost, but still, highly fashionable appearance and other high-tech features and amenities that other lower-priced EV’s like the Toyota Prius and Nissan Leaf don’t offer.
The Model 3’s success shows that if you offer higher-end features and options in EV’s that consumers want, they will buy them. We recently saw Ford using a model of its Electric F 150 truck pull a 1.25-million-pound train. Tesla has shown models of its electric pickup truck, not to mention its Semi-truck electric vehicle.

With rapidly increasing numbers of EV’s being sold and now more options in terms of types of EV’s soon to hit the market, it's hard to see how the demand for lithium doesn’t increase in the coming years. Which is why now may be the best time to buy up some lithium-based Exchange Traded Funds and sit on them while other investors push the prices higher once they realize they missed the boat.

With that in mind, let’s take a look at a few lithium-based ETFs you can buy today.

The first only pure-play lithium ETF currently available is the Global X Lithium & Battery Tech ETF (LIT). This fund has been around since 2010, currently has $523 million in assets under management, with an expense ratio of 0.75%. The ETF tracks a market-cap weighted index of global lithium miners and battery producers and therefore gives you broad exposure to the lithium industry both up and down the supply chain. The fund also offers a distribution yield of 3.44%, holds 41 positions with a weighted average market cap of $9.57 billion. Due to concerns of an oversupply of lithium, LIT is down almost 17% over the past year.

The next option to consider is the Amplify Advanced Battery Metals and Materials ETF (BATT). BATT is an actively managed fund that invests in global advanced battery material companies such as those that mine or produce lithium, cobalt, nickel, manganese, and graphite. The fund looks at both developed and emerging markets and to qualify a company must generate at least 50% of its revenue from the mining, exploration, production, development, processing, or recycling of the important battery metals mentioned. BATT has been available since June of 2018, has a 0.72% expense ratio, 42 holdings, and a distribution yield of 0.92%. Over the past year, BATT is down 33%.

Two other, much less pure-play lithium options are the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) and the brand-new ALPS Clean Energy ETF (ACES). QCLN is not so much focused on lithium or other metals needed for batteries, but it does focus on clean energy which incorporates batteries, for both use and energy storage. Furthermore, two of its top four holdings include Tesla and Albemarle, a company that is top lithium player. The fund has an expense ratio of 0.60%, 42 holdings, a yield of 0.83% and despite only having $109 million in assets under management it has been around since 2007. Additionally, QCLN is up more than 11% over the past year, largely due to its more diverse holdings than the previous two ETF’s, but then again it is the least exposed to lithium out of the three.

While we still don’t have a ton of information on ACES we do know that it will invest in renewable energy and clean energy technology companies. The technology portion of the fund will invest in companies involved in any are of electric vehicles, the battery technology used in those vehicles, the fuel cells themselves. While we still don’t know what exactly those companies are, its fairly safe to say ACES will own some of the same companies as the other three ETF’s mentioned here and with an expense ratio of 0.65%, making it very competitive in terms of price.

In the future, it is hard to see how the need for lithium and other metals used in new battery technologies doesn’t increase, despite what reports predict today. It's also clear right now that the market is following along with the reports as we have seen these ETF’s hammered over the last year. But, as most good investors know, the best time to strike is when blood is in the water.

Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor held long positions in owned shares of Ford and Tesla at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.