The materials sector is on a hot streak as the global economy strengthens, with a sub-sector-specific exchange traded fund that tracks rare earth metal producers among the standouts in the space.
The VanEck Vectors Rare Earth/Strategic Metals ETF (NYSEArca: REMX) has increased 68.8% over the past year, compared to the broader S&P 500 Materials Sector Index’s 34.1% return. REMX was also among the best performers Monday, adding another 2.4%
Among the best rare earths mining companies Monday, Lynas Corp (ASX: LYC) surged 14.1%. The Australian miner makes up 5.4% of REMX’s underlying holdings.
REMX tries to reflect the performance of the MVIS Global Rare Earth/Strategic Metals Index, which is comprised of global companies involved in producing refining and recycling rare earth and strategic metals and minerals.
The ETF includes global miners with a heavy 35.5% focus on Chinese firms, along with 27.9% Australia, 10.8% Canada, 8.8% Japan, 5.6% South Africa, 4.8% U.S., 3.5% France and 3.1% Brazil.
Rare earth and strategic metals are industrial-grade metals usually extracted as by-products in operations focused on precious metals and base metals. In contrast to base metals, rare earths have more specialized uses and are often more difficult to extract. About 49 elements in the periodic table are considered rare earth or strategic metals.
Since the rare earth metals are typically mined as by-products, the producers may be strengthening off improved prices in base metals, or their primary mining operations. For instance, Australian shares pushed higher Monday after iron ore and copper prices jumped, reports Shashwat Pradhan for Reuters.
Chinese iron ore futures surged almost 8% on Friday to their highest in three years on news that January imports to the world’s second largest economy increased on a sharp uptick in demand from steel mills.
“It is the miners (driving the gains) to an extent. The material sector is the strongest performing sector. A lot of the strength is coming from the materials but there are other pockets of strengths in the market as well,” Christopher Conway, head of research and trading at Australian Stock Report, told Reuters.
As technology advances, demand for rare earth metals have increased to meet the increased usage of electronic devices and machines.
“Strategic metals are used in myriad technologies such as jet engines, hybrid cars, steel alloys, wind turbines, flat screen televisions and cellular phones,” according to VanEck. “Rare earth metals, a subset of strategic metals, are a collection of 17 chemical elements that are essential in many of today’s most advanced technologies, with particular applications in electronics.”
For more information on the miners space, visit our metals & mining category.