Whether it’s electric vehicles, energy storage, or other clean technologies, batteries are at the heart of powering many parts of the green spectrum.
Some exchange traded funds provide dedicated exposure to that theme, including the newly minted WisdomTree Battery Value Chain and Innovation Fund (WBAT). WBAT debuted last week as the latest ETF in the WisdomTree megatrends suite.
When comes to batteries and the related investment thesis, some investors are already familiar with lithium-ion batteries, which power electric vehicles. As has been seen throughout the renewable energy spectrum, declining battery costs are hastening adoption of electric vehicles. That trend has ample momentum because the automotive market, both consumer and industrial, has more room for electrification.
“Within the transportation market, electric vehicles need a portable electricity source, and batteries are the solution. Looking ahead, electric vehicle adoption is likely to be the main catalyst for battery demand. As battery costs continue to fall, we approach cost parity between electric vehicles and internal combustion engines, which marks a significant catalyst for higher battery demand,” says WisdomTree analyst Kara Marciscano.
Lithium’s lightness makes it ideal for storing electricity, and demand for the material is surging, leading to prices as high as $50,000 per ton. That’s potentially beneficial for the mining and chemical industries, which mine lithium and produce battery-related components.
“The mining and chemical industries each provide raw materials to manufacture battery cell components,” notes Marciscano. “Cells are then packed for different applications—such as increasingly popular electric vehicles. At the end of life, batteries may be recycled or used for secondary applications, such as electrochemical storage systems.”
As of February 17, WBAT features exposure to seven sectors, with materials and industrials combining for over 73% of the rookie ETF’s roster, according to issuer data. While that’s a top-heavy sector lineup, it’s relevant in terms of battery investing, and none of WBAT’s 89 holdings exceed a weight of 4.32%.
Moreover, WBAT’s methodology is exceedingly relevant because the fund touches multiple corners of the battery ecosystem, presenting investors with a broad-based approach to a disruptive growth segment of the market.
“Our process starts with identifying companies that operate across the battery value chain and scoring each one based on its exposure to battery and energy storage solutions and innovation,” concludes Marciscano. “The methodology is designed to tilt toward companies with higher exposure to competitively positioned segments of the battery value chain. We also use a number of other screening techniques to mitigate the risk of exposure to illiquid or extremely high-risk companies in positions of high weight.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
