Hot Lithium ETF Could Cool Off

Up nearly 21% year-to-date, the Global X Lithium ETF (NYSEArca: LIT) has quietly been one of this year’s best-performing equity-based commodities exchange traded funds, but some market observers believe the lithium trade is primed to cool off.

LIT tracks a diversified group of companies involved in the “full lithium cycle,” from mining and refining the metal through battery production. Lithium is utilized in batteries for their high charge density, or longer lasting life.

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One of the marquee names in LIT is Tesla (NasdaqGS: TSLA), a stock that has struggled this year, making the ETF’s performance all the more impressive.

“Lithium demonstrates all the characteristics of a commodity bubble: 1) what appears to be a compelling bull case, which actually focuses solely on demand and totally ignores the supply side of the equation; 2) an expanding supply side with a total lack of barriers to entry; and 3) technological innovations that could potentially halve costs and boost the reserve base,” according to an AB note posted by Dimitra DeFotis of Barron’s.