An exchange traded fund that invests in companies that are active in the exploration and mining of lithium and battery producers rose on Monday with A123 Systems (NasdaqGS: AONE) leading the way following an upgrade at Morgan Stanley.

A123 Systems shares rallied about 13%. Morgan Stanley boosted its rating on the stock to overweight from equal weight, saying it expects the firm to unveil a major contract by January, according to Bloomberg.

The shares account for nearly 4% of Global X Lithium ETF (NYSEArca: LIT).

“Demand for lithium has increased dramatically in recent times, and investment here will require a strong positive thesis for sustained demand increase going forward,” Morningstar says in a profile of the fund. “Lithium is a commodity, a rare earth metal, but investors should understand the mechanics of this fund before attempting to use [the ETF]as a proxy for spot lithium.”

Unlike some other commodity ETFs, the lithium fund invests in stocks rather than physical lithium or futures contracts.

“Lithium is used almost exclusively for industrial purposes, and its price will, thus, fluctuate with industrial activity,” according to the profile.

The ETF is down nearly 16% in 2011.

Deutsche Bank in a recent note on A123 Systems said although the stock is “relative speculative” the company is “a compelling way to take advantage of the growth in vehicle electrification, as well as the use of lithium-ion batteries to enhance electric grid performance.”

Global X Lithium ETF

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