Hot Lithium ETF Could Cool Off

Due to their close ties with the commodities market, the materials sector are susceptible to cyclical demand and volatility in raw material and energy prices. While the sector’s sensitivity to business cycles can expose investors to greater risks, the area may also offer attractive returns during periods of strong growth.

With the economy recovery maturing, the materials sector, which is closely tied to the prices of raw materials, have traditionally done well as inflation rises and late-cycle economic expansions help support demand

SEE MORE: 23 Best ETFs to Track Basic Materials

“Perhaps the best illustration of that lithium frenzy is Tesla’s newly-built battery lithium-ion factory. Tesla is already the largest consumer of lithium ion on the planet and is set to become the largest producer of lithium-ion batteries, by far. The company’s new factory is huge. So gigantic that BGR, a leading online website for mobiles and consumer electronics referenced it as “mind-blowing”. The factory was built (and is still not fully complete) to meet Tesla’s target to manufacture 500,000 electric cars per year by 2020,” according to the AB note featured in Barron’s.