While the Global X Lithium ETF (NYSEArca: LIT) recently succumbed to some profit-taking, the lone exchange traded fund dedicated to the lithium equity trade mostly kept its momentum in the third quarter. LIT surged about 13% in September, bringing its third-quarter gain to 29%.
LIT enters the fourth quarter with a year-to-date gain of almost 53%, making it one of 2017’s best-performing non-leveraged ETFs.
LIT, which debuted over seven years ago, tracks the Solactive Global Lithium Index. The ETF holds 27 stocks. While electric car maker Tesla is 5.6% of the ETF’s weight, that is good for just the fourth spot on the fund’s roster. LIT’s top two holdings – FMC Corp. (NYSE: FMC) and Soc. Quimica & Minera de Chile SA (NYSE: SQM) – combine for over 42% of the ETF’s weight.
When many investors think of lithium, they think of electric vehicles. Indeed, electric vehicles, or EVs, are integral parts of the lithium demand equation.
“While electric vehicles have previously been viewed as a gadget for affluent early adopters, EVs appear to be on the verge of going mainstream,” according to Global X research. “A major driver of this change is a major reduction in battery costs, which has made EVs much more affordable relative to traditional combustion engine-powered vehicles. Bloomberg’s New Energy Finance unit found that lithium-ion battery costs fell by nearly 50% from 2014 to 2016 as battery producers raised output and competition increased.”
LIT, the only equity-based ETF on the market dedicated to lithium miners and producers, 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.
Related: Rising Electric Car Demand Powers Lithium ETF
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. With more lithium battery factories coming online, production of the metal could triple over the next five years.
“Over the long term, lithium producers should be able to meet heightened demand as they ramp up production. According to the US Geological Survey, world reserves of lithium top 47 million tons, while consumption of lithium was just 37,800 tons in 2016, implying plenty of availability of the natural resource,” according to Global X.
For more information on the materials space, visit our basic materials category.