One month ago, Global X announced the latest addition to its ETF product lineup, the Global X Lithium ETF (LIT), giving investors an easy way to play the metal and it has been a hit.
Since its inception, LIT has topped $20 million in assets and regularly sees daily trading volumes north of a million shares. LIT carries an expense ratio of 0.75% and holds 20 securities, all of which are engaged in some aspect of lithium, including mining, exploration and lithium-ion battery production. According to LIT’s fact sheet, it allocates nearly 23% of its assets to the Chilean giant SQM, nearly 16.7% to FMC Corp (FMC), and 7.8% to Rockwood Holdings (ROC), which is a major lithium compound producer. Also, 51% of the ETF’s assets are allocated to lithium mining and processing and 49% to the lithium-ion industry.
One of the reasons LIT has been a hit amongst investors is the overall attractiveness and multiple uses of the metal. Lithium is one of the most important natural resources in the world, and can be found in cell phones, aircraft parts, nuclear weapons and medical applications, just to name a few.
Additionally, lithium plays a vital role in the alternative energy sector. The metal has the capacity to store electric energy more efficiently than any other metal, which is essential in generating solar and wind power as well as in powering electric and hybrid cars, like those of Telsa Motors (TSLA).
Last, lithium is already being used in numerous consumer products in the form of lithium batteries. Nearly 90% of all laptops use lithium-ion batteries and over 60% of cell phones utilize the batteries.
As for the future, new technological advances, continuing innovation and the emerging electric transportation sector are likely to support demand for the metal.
Although an opportunity seems to exist in lithium, there are inherent risks involved with investing in a commodity-based ETF. To help mitigate these risks, the use of an exit strategy is of importance.
Disclosure: No Positions