- Lithium has been one of the most sought industrial metals in the past few years.
- As per market experts, lithium demand is expected to rise steadily and might triple by 2030, driven by high growth in the electric vehicle market.
- Investing in the lithium sector through Exchange-traded funds that track the index or sector could be a prudent investment decision.
Investment in lithium-based businesses might be a smart decision for high future returns as demand for the commodity is expected to rise because of the push towards electric vehicles. Also, major economics around the world is more focused on net-zero carbon emissions and moving towards alternative energy sources that are sustainable and environmentally friendly.
Lithium ore has been one of the most sought industrial metals in the past few years. Traditionally, lithium was used in the making of glass and ceramics, but at present, it is predominantly used in making batteries that power electric cars. As per market experts, lithium demand is expected to rise steadily. Demand might triple by 2030, driven by high growth in the electric vehicle (EV) market and increased penetration of smartphones and portable devices.
Lithium is mined from hard rock or is extracted from brine deposits. Most of the world’s lithium reserve is located in a handful of countries. Brine production is carried out mainly in South American countries like Chile and Argentina, while Australia has a majority of the hard rock mines and production companies.
At present, Australia is one of the leading producers and supplies most of the lithium to the world as the production setup of hard rock mines takes less time than brine production projects.
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Exchange-traded fund (ETF)
Although there are multiple ways in which investors can look to take exposure towards lithium business like buying stocks of a lithium mining company or direct financing of lithium project. But these investments can be risky and expose investors to unsystematic risk. Exchange Traded Funds that track the index or sector could be a sensible investment option that will help diversify the risk as ETFs are passive funds that try to replicate the performance of assets they are tracking. ETF constituent different assets and trade on an exchange just like any other stock. Also, ETF buying attracts a low expense ratio and commission cost. Let us take a look at FTSE listed ETF schemes that track different businesses operating in the lithium sector:
Global X Lithium & Battery Tech ETF (LON: 0IYG)
It is one of the best ETFs for investors who want experience to the entire lithium ecosystem. This ETF invests in mining and battery manufacturing companies. The ETF is listed on London Stock Exchange and has an investment in close to 40 holdings with total assets of over USD 2.8 billion as of March 2021.
ETF has an investment in major mining companies like Albemarle Corp, Ganfeng Lithium Co Ltd, EVE Energy Co Ltd and many more, while its expense ratio is 0.75%, which is a very low cost for the fund. In addition, the fund also pays annual dividends to its shareholders. As it invests in the entire lifecycle of the lithium sector, it diversifies the risk. The fund seeks to follow the performance of the Solactive Global Lithium Index.
Wisdomtree Battery Solutions ETF (LON: CHRG)
The ETF mainly invest in battery and energy storage solutions. It has invested in different companies like Plug Power Inc, Contemporary Amperex Technology Co Ltd, Livent Corp, while its total assets are at £19 million. It has a low expense ratio of 0.40%. Also, the fund is listed on different exchanges in the US and the UK. The fund aims to replicate the performance of the WisdomTree Battery Solutions Index.