The Global X Lithium ETF (NYSEArca: LIT) is up more than 40% over the past year. With Elon Musk’s Tesla Motor (NASDAQ: TSLA) planning to ramp up production, lithium prices are expected to continue rising, which could be a boon for LIT.
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.
Lithium is “An essential component in the advancement of alternative energy is the ability to efficiently store power,” according to Global X. ” Renewable energy sources such as solar and wind require generated electricity to be stored because they provide power inconsistently throughout the day. Overhauling the transportation industry to run on electricity, rather than gasoline, requires enough energy storage to power vehicles for hundreds of miles. To meet these energy storage demands, advanced batteries are made from Lithium.”
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.