Whether it’s everyday consumer electronics, military gear, or renewable energy products, rare earth metals are increasingly essential to an array of industries.
Predictably, that status comes with compelling investment implications, which could elevate the notion of focusing on specialized exchange traded funds, namely the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) and the VanEck Green Metals ETF (GMET).
Home to nearly $760 million in assets under management, REMX is the seasoned member of the duo, as it’s approaching its 12th birthday in October. GMET, which tracks the MVIS Global Clean-Tech Metals Index, debuted last November. Age aside, the demand dynamics of rare earths and green metals confirm that both ETFs are relevant today.
“Many secular trends have driven increased demand for green metals such as copper, lithium, and rare earth elements in recent years, and that demand is only expected to increase moving forward,” wrote Brandon Rakszawski, VanEck senior product manager. “Technological advancements—including those technologies and applications needed for the transition from fossil fuels to a low carbon economy—are expected to continue to fuel the next wave of demand.”
GMET and REMX are also relevant ideas for tactical investors because many old guard materials and mining ETFs don’t adequately address green metals and rare earths. That’s a byproduct of many of the world’s largest mining companies, which dominate cap-weighted funds, focusing on mining traditional industrial metals and gold, meaning that they lack growth opportunities offered by many GMET and REMX member firms.
“While large, diversified metals and mining companies are heavily involved in the extraction and processing of green metals, their revenues and expenses are often far more influenced by industrial metals such as aluminum and iron ore. As a result, investors are left with few options to gain direct exposure to this long-term narrative,” added Rakszawski.
In what could potentially be encouraging news for investors, both GMET and REMX are at intersections of disruptive trends with impressive long-term growth trajectories. For example, GMET components are essential in setting the stage for the renewable energy transition.
“REMX has provided significant exposure to lithium in recent years. Generally between 40%-50% of the portfolio has been tied to lithium-related companies. Rare earths are a prominent exposure in the ETF with at least 25% of the portfolio tied to those companies involved in the extraction and processing of rare earths, according to FactSet RBICS data,” concluded Rakszawski.
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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.