There are those who strongly believe that emerging market growth is fueling fantastic demand for metals of all kinds — precious metals, industrial metals and “semi-precious” metals. Others look at the U.S. dollar’s decade-long slide, viewing commodities as an effective currency hedge against continuous greenback devaluation.
Regardless of your reason for investing in precious metals like gold and silver… regardless of your reasons for getting exposure to nickel, tin or zinc… you’ve gotten the upper hand on most stock assets in 2010. “Metal mania” is backed up by sterling year-to-date percentage gains:
|“Metal Mania” Approximate Performance Through 10/4/10|
|iPath DJ-UBS Tin (JJT)||47.4%|
|iShares Silver Trust (SLV)||30.2%|
|iPath DJ UBS Nickel (JJN)||27.9%|
|ETFS Securities Physical Palladium (PALL)||24.9%|
|SPDR Gold Trust (GLD)||19.9%|
|iPath DJ-AIG Copper (JJC)||6.6%|
|iPath DJ-AIG Industrial Metals (JJM)||3.1%|
|S&P 500 SPDR Trust (SPY)||2.7%|
In spite of the enormous success investors are having with traditional metal investments, there’s a cadre of forward-thinking people who want access to rare earth metals. Yet, as of today, there isn’t an exchange-traded vehicle for accessing the 15 rare earth elements (rare earth metals) that are numbered 57 through 71 on the Periodic Table of Elements.
Perhaps ironically, your ninth-grader may be more familiar with these metals than you are – from lanthanum to dysprosium, from terbium to neodymium. Until recently, in fact, many might not have believed that rare metals had much in the way of commercial applications.
However, major aerospace/defense projects require more of them for combat helicopters to the fins on “smart bombs.” Similarly, hybrid cars can’t operate without one or more of these elements.
That’s why governments are showing increasing concern over the reality that China accounts for 97% of the world’s rare earth metal production. Equally compelling, Aluminum Corp of China invested $1.5 billion in several rare earth metal companies just last week.
As an investor, then, what’s the best approach to “cashing in.” Some writers have posited that you should purchase shares of “REM” miners. Yet mining stocks are often quite speculative and certainly more volatile than the commodities themselves.
So what else can you do? In previous “rare earth” commentary, I suggested that investors take a look at China Small Cap (HAO). My thesis was… the middle class Chinese consumer currently accounts for 60% of the world’s rare earth metal consumption; that is, the Chinese consumer is responsible for buying the most electric/hybrid cars.
Since writing the commentary, though, new investment alternatives have come to the forefront. Global X China Consumer (CHIQ) tracks an index that endeavors to reflect the performance of the consumer sector in China. This ETF capitalizes on Chinese consumption of rare earth metals as well the increasingly consumer-driven Chinese economy. While China Small Cap (HAO) is still a better proxy for the domestic Chinese economy as a whole, CHIQ has 11% direct exposure to automobiles.
IRONically, these investing solutions regard individual mining stocks or consumer-based stock ETFs. And there are thousands of folks who would rather get exposure to a diversified basket of the rare metals instead. Unfortunately, it doesn’t exist today.
With that said, Dacha Capital is an investment company focused on the purchase, storage and trading of rare earth metals. (Note: As of September 28, the company renamed itself Dacha Strategic Metals (OTCPK:DCHAF). It may be the closest thing to an ETF of rare metals at the present time, as it has a diverisified rare metal inventory:
|Metal inventory (in millions of Cdn dollars – unaudited)||Quantity (Kgs)|| |
|Held outside China|
|Dysprosium Oxide|| |
|Dysprosium Fe|| |
|Gadolinium Oxide|| |
|Lutetium Oxide|| |
|Terbium Oxide|| |
|Yttrium Oxide|| |
|Held within China|| |
|Europium Oxide|| |
|Yttrium Oxide|| |
Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.