With the push toward electric transportation and the decline of fossil fuels, you may be considering investing in a lithium ETF. But how do you know which one is best, and will lithium value go up or down in the future?
Of course, you don’t want to miss out and wait too long, or the price may go up so much that you can’t afford to invest. Or perhaps you are unsure which sector is best to invest in, mining, battery manufacturing or electric vehicle companies.
So, we have taken a look at five of the best lithium ETFs (see also ‘A List Of The Top Precious Metals ETFs‘) available to save you time and effort. Now all you need to do is choose which one is for you and make that trade.
For brevity, the ticker symbol for each lithium ETF will be used in the text.
Global X Lithium & Battery Tech ETF has the ticker symbol LIT, and it tracks the Solactive Global Lithium index performance. This ETF is a good choice for those investors who want to cover the whole lithium cycle, as LIT invests in a range of companies.
The holdings are spread across the full spectrum of lithium from mining companies to battery producers and include Albemarle Corp, SQM and Tesla. Most of the funds are invested in American and Chinese companies, and this is where 60% of the holdings reside.
The largest exposure in LIT is Albemarle Corp (ALB). This corporation has a strong position in the lithium mining sector with mines in the US, China, Australia and Chile. LIT’s weighting system allocates money to companies it has the most confidence in.
With the increasing demand for lithium for the electric transportation industry, this exposure should prove valuable. Currently, LIT has over $5.4 billion under management with stocks from all over the world.
LITs portfolio is weighted towards materials at more than 44% and this should benefit most from increased global demand for lithium.
It is different to its peers in that it is geographically diversified, with China having the largest exposure at 45% and the US at just 23%. Australia, South Korea, and Japan have portfolio exposure of 10%,10% and 5% of the exposure respectively.
- Holdings cover the whole lithium cycle from mining to battery production
- Albemarle Corp has a strong position in lithium mining sector
- Geographically diverse with exposure in China, Japan and Australia
- 44% of portfolio is in materials which will benefit from increased lithium demand
- Holds some of the largest lithium stock in the world
- Lithium stocks in general have fallen from 2021 highs
Amplify Lithium & Battery Technology ETF has the ticker symbol BATT and this is still a relatively new fund, created in 2018. It has net assets of $230 million and 87 holdings, so it is much smaller than LIT.
This ETF tracks the performance of the EQM Lithium & Battery Technology Index. The stocks it invests in generate revenue from developing, manufacturing and the use of lithium battery technology.
BATT has a heavy weighting toward the Asian lithium market, but also invests in other parts of the world, especially in the electric transportation sector. Tesla, Rivian Automotive, and BYD are among the fund’s biggest investments.
Tesla at 7.94%, Contemporary Amperex Technology at 6.92% and BHP Group LTD at 5.57% are the top three stocks of this fund.
Contemporary Amperex is one of the biggest lithium-ion battery producers in China and supplies EV manufacturers such as Tesla, BMW and Volvo.
Almost 33% of BATT’s portfolio is invested in metals and mining, which could leave it open to volatility, as the price of metals can be quite unpredictable and often move in cycles.
Glendora, BHP, and MMC Norilsk Nickel are three of BATT’s investments within this sector.
- Revenue is generated from lithium battery technology from development to manufacture and utilization
- BATT has a strong presence in the Asian lithium market
- Contemporary Amperex is one of it’s biggest stocks and is China’s largest lithium battery manufacturer
- BATT does not just invest in lithium mining companies and is heavily exposed to metal and mining stock
VanEck Vectors Rare Earth/Strategic Metals ETF has the ticker symbol REMX and follows the MVIS Global Rare Earth/Strategic Metals Index. This index includes companies that have at least 50% of their revenue coming from rare earth or strategic metals.
As the demand for clean technology and decarbonization gathers pace, REMX offers the opportunity to track those companies which are enabling this energy transformation. Rare earth and strategic metals such as lithium will continue to be vital to this transformation.
This fund offers access to a diversified range of approximately 20 global companies amid soaring demand for these commodities. It has net assets of $881 million, and its policy is to closely replicate before fees and expenses the price and yield performance of the index.
REMX usually invests around 80% of total assets in securities that constitute the fund’s benchmark index. It has exposure to some small and emerging-market issuers, and its holdings are selected and weighted by market capitalization at an 8% cap per issuer.
- Fund includes companies with the most liquidity that generate at least 50% of their revenue from rare earth metals
- Holdings including lithium mining companies and battery manufacturers
- Globally diversified with holdings in Asia, Australasia, North America and Europe
- One of the top 3 holdings is a cobalt mining company which has been linked to unethical labor practices in the Democratic Republic of Congo
WisdomTree Battery Solutions UCITS ETF has the ticker symbol CHRG on the London Stock Exchange. It is one of the more recently created ETFs and only launched in 2022. It aims to track the price and performance of the WisdomTree Battery Solutions Index.
The fund does this by investing in companies within the battery technology sector. As with a lot of lithium based funds, CHRG holds many companies that reside in China or the USA. As a result, around 50% of the ETF is weighted to these regions.
Among its top holdings are lithium battery manufacturers Enersys and Simplo technologies. The top ten investments in the fund make up 30% of its holdings, making it a more equal ETF than some others in the market.
From the outset, CHRG has mostly moved in an upward direction, apart from a slight dip in the first few weeks. Due to its targeting of battery companies, its holdings are not direct lithium plays, but this makes it a nicely diversified ETF.
It is a focused and relevant portfolio with exposure to businesses which are capitalizing on the growth of battery and energy storage solutions.
- Weighted toward companies in the battery technology sector that reside in the USA or China
- Its top ten investments make up just 30% of its holdings, creating a more equal ETF than some of its competitors
- Has moved consistently upward since its launch
- Holdings are not direct lithium plays but target battery technology
ARK Autonomous Tech. & Robotics ETF has the ticker symbol ARKQ. This fund also does not directly focus on the lithium market but rather on the companies in the electric vehicle sector such as Tesla, BYD, Niu and Nio.
These four electric vehicle companies make up the majority of the lithium based investment in ARKQ. As the name implies, it also invests in robotics.
Not only that, but investors are offered access to other growth opportunities such as 3-D printing, energy and space.
Although the majority of the fund is based in the USA, the fund has spread its investments across the globe. The top ten holdings add up to 53% of ARKQ’s assets, with Tesla having the lion’s share at more than 10%. It typically has 30-50 holdings at any one time.
The fund will in normal circumstances invest 80% of its assets in securities that are relevant to the fund’s theme of disruptive innovation. This more indirect way of investing in the lithium market offers real opportunities in high growth markets.
Companies within ARKQ seek to benefit from new technologies and advancements in scientific research relating to energy, automation and transportation. The fund currently has assets of $1,338 million.
- The fund focuses on the electric vehicle market, with Tesla having 10% of the holdings
- Other holdings offer growth opportunities in robotics, energy, 3-D printing and space
- The fund invests in securities that focus on its theme of disruptive innovation
- Current assets are at $1,338 million
- This ETF is not a direct play in lithium, but exposed to industries that utilize it
To invest in lithium stocks, there are some considerations before you decide which ETF is right for you. Let’s take a look at what you need to know and what you should look at before choosing.
The underlying index is the benchmark that the fund is based on. This may be a broad and diversified index, or one that is more narrowly focused on industry or geographical location. Not only should you look at what stocks an ETF holds, but how the holdings are weighted.
Some indexes will weight their holdings equally, while others are happy to let one or two carry the bulk of the burden. If you are looking for diversification, then an index that is more broad and widely followed would be a better choice for you.
The Global X Lithium & Battery Tech ETF tracks the Solactive Global Lithium index, which is ideal for those who want to spread investment across the whole lithium cycle, from mining to battery production and on to end users such as Tesla.
Amplify’s Lithium & Battery Technology ETF tracks the performance of the EQM Lithium & Battery Technology index.
This index seeks to expose companies in the development and production of lithium battery technology and in the exploration and development of lithium.
MVIS Global Rare Earth/Strategic Metals index is what VanEck Vectors Rare Earth/Strategic Metals ETF follows.
This is a modified market capitalization weighted index that only includes companies that generate 50% of their revenue from rare earth or strategic metals.
The WisdomTree Battery Solutions UCITS ETF follows the WisdomTree Battery Solutions index. It is primarily designed to track the performance of companies that are involved in battery and energy storage solutions.
ARK Autonomous Tech. & Robotics ETF has no underlying index.
In order to assess the performance of an ETF, it is not enough to simply look at previous performance, as the market goes up and down regardless of this. The way to better gauge an ETF is tracking difference.
This is the method that investors use to see if they are getting what they paid for. As discussed above, most ETFs aim to track an index. Simply put, this means they attempt to deliver the same returns as the index they track.
So the tracking difference is the discrepancy between the index performance and the ETF performance. This number will rarely be zero, as in the real world the ETF will not perfectly track the index for various reasons.
Typically, the ETF will be lower than the index.
The tracking difference can be large or small, negative or positive. A related measurement is tracking error, which looks at variability rather than performance. It assesses the volatility in the difference of performance between the index and the fund.
You need to know if the ETF is trading in sufficient volume on a daily basis. Many popular ETFs will trade in millions of shares per day, while others trade infrequently. The trading volume is an indicator of the liquidity of the fund, regardless of its asset class.
In general, the higher the trading volume, the greater the liquidity of an ETF and the tighter the bid ask spread. These considerations will be particularly important when it comes time for you to exit the ETF.
The liquidity of an ETF is derived from two different sources, the liquidity of the fund and the liquidity of the underlying shares. ETFs with high average daily trading volumes and more AUM will trade at tighter spreads than those with less daily trading or lower assets.
One of the benefits of an ETF is that investors can trade their shares at any time that the market is open at the market price, less any charges or fees incurred when selling.
Level Of Assets
For an investment to be viable, an ETF should have a minimum level of assets. A threshold of $10 million is common. Anything below this level will likely hold a limited interest for investors. This, in turn, can mean wide spreads and poor liquidity.
An ETF with a low level of assets under management could be in danger of liquidation.
Although, if an ETF is in danger of being liquidated, investors are notified in advance of the stop trade date and have the option to sell before or hold on until liquidation (see also ‘Which Investment Has The Least Liquidity?‘).
In a given sector, the first issuer of an ETF has the best chance of getting the greatest proportion of assets before others follow suit. It is worth avoiding ETFs that seem to be imitations of an original idea for a fund.
Frequently Asked Questions
Are Lithium ETFs A Good Investment?
The growing market for electric vehicles and transportation means that lithium is in high demand and looks likely to be so for the foreseeable future. With the push for greener ways to move around, lithium batteries are necessary for electric cars, buses and trucks.
Internal combustion engines are being phased out and for the moment the best alternative for powering cars is the lithium battery. As lithium supplies dwindle, the price is likely to go up.
How Do I Invest In Lithium ETFs?
One benefit of ETFs is that they are affordable for a lot of people, this is also the case with lithium ETFs. You can invest by opening a brokerage account, this is relatively straightforward and can be done online.
Once open, you can use your brokerage account to find and compare lithium ETFs. When you have chosen one, you make the trade. Or, if you prefer, you can use a broker to invest for you.
Lithium is a vital component in the transition to cleaner energy and electric transportation, so it has huge growth potential in the future. Zero emissions from electric vehicles means cleaner air and reduced greenhouse gas emissions in line with global targets.
A lithium ETF can give you the opportunity to invest in lithium mining, battery manufacture or electric vehicle companies. You can also be geographically diverse in your investment with operations in Asia, Australia, North America and Europe.
Consider what you want from your investment and if you are still unsure you should consult a professional financial advisor before committing any money to an investment.