By Brandon Rakszawski
Director, Senior Product Manager
Green metals have taken center stage in recent years as demand for many has increased exponentially, while supply has remained thin. The global transition from fossil fuels to a low carbon economy is the primary driver of demand, while the difficulty of and environmental hurdles related to the development of new mining projects are a major factor limiting supply. This dynamic has driven increased investor interest in the companies extracting and processing green metals. But few clear-cut public investment opportunities to access upstream exposure to these metals exist. VanEck Green Metals ETF (GMET) seeks to track as closely as possible, before fees and expenses, the price and yield performance of the MVIS® Global Clean-Tech Metals Index (MVGMETTR), which is intended to track the performance of companies involved in the production, refining, processing, and recycling of green metals. This blog is intended to answer some frequently asked questions on green metals and VanEck’s Green Metals ETF.
- Q: What are green metals?
- Q: How are green metals used?
- Q: How can investors access an investment in these metals?
- Q: What are the risks of investing in these metals?
- Q: How prominent is China’s role in the green metals market?
- Q: How does GMET obtain exposure to Chinese companies?
- Q: What metals exposure is prevalent in GMET?
- Q: Does investing in GMET generate Schedule K-1 tax statements?
- Q: How can investors buy VanEck ETFs?
Q: What are green metals?
A: Green metals are metals used in the applications, products, and processes that enable the energy transition from fossil fuels to cleaner energy sources and technologies. Put simply, the demand for green metals is expected to be driven in large part by their role in the energy transition. Metals such as lithium, cobalt, and various rare earth elements are widely discussed metals in this regard, but other metals such as copper, nickel, and platinum group metals have increasingly become intertwined with the clean energy supply chain. MarketVector Indexes considers the following metals when assembling the MVIS Global Clean-Tech Metals Index:
|List of Green Metals/Minerals|
|Cerium||Cobalt||Niobium (aka Columbium)||Copper|
Source: MarketVector Indexes.
Q: How are green metals used?
A: Green metals can be found in everything from electric vehicles and batteries to wind turbines and solar panels. Below is just a sample of various green metals used in decarbonizing applications.
|Metals Required in Decarbonizing Applications|
|Wind||Solar Photovoltaic||Hydro||Geothermal||Energy Storage||Nuclear||Carbon Capture & Storage|
Source: World Bank: Minerals for Climate Action, Testing, Inspection and Certification Council (TIC), Joint Research Center (JRC).
Q: How can investors access an investment in these metals?
A: Physical investment in these metals is not realistic, but there are futures contracts that offer derivative exposure to a subset of these metals (and compounds) such as copper, nickel, lithium hydroxide, and cobalt. Futures exposure can be complicated and comes with a set of risks unique to futures’ market structure, such as contango and backwardation. Another way to access this space is through equity investments in the companies that are involved in the extraction, processing, and recycling of these metals. Their share price is influenced by the supply and demand dynamics that also influence metals prices. GMET provides global exposure to companies involved in producing, refining, and recycling green metals. “Drill down on Green Metals and Rare Earth Elements” provides a closer look at how investors can gain exposure to metals and mining companies in this space.
Q: What are the risks of investing in these metals?
A: As commodities, green metals are heavily influenced by supply and demand trends. As such, the metals and related companies can be cyclical. Equity market risk is also prevalent as companies navigate inflationary costs, geopolitical events, and market volatility. This segment of the market has exhibited a high level of volatility, historically. Additionally, many governments consider these metals critical to their economic prosperity and will act to position and defend their supply chains. Finally, a clear risk in this space is exposure to China. China dominates the rare earth market, along with the processing of other green metals such as lithium and cobalt, and changes to their processes and policies have had an outsized impact on the supply chain globally.
Q: How prominent is China’s role in the green metals market?
A: China has long been a dominant player in green metals. According to the International Energy Agency, in 2021 China accounted for approximately 60% of global rare earth element production and nearly 90% of global rare earth element processing. Similarly, China was the global leader in cobalt, copper, lithium, and nickel processing in 2021. China’s outsized role can’t be denied and its prominence is reflected in GMET’s index. However, this dominance has led many countries to sound the alarm when it comes to their reliance on China. Many are investing in efforts to “onshore” their supply of and processing capacity for green metals and the market could potentially evolve in the years to come.
Q: How does GMET obtain exposure to Chinese companies?
A: “A-shares” issued by Chinese companies trading via the Shanghai-Hong Kong Stock Connect program and the Shenzhen-Hong Kong Stock Connect program are eligible for inclusion in GMET’s underlying index. A-shares are common stock of Chinese companies that, prior to the introduction of the Stock Connect programs, were only accessible to certain qualified investors. GMET can invest in A-shares of Chinese companies as well as other shares listed outside of China.
Q: What metals exposure is prevalent in GMET?
A: Green metals are often produced in combination with a wide range of other metals, including widely-mined precious and base metals. As a result, it is difficult to quantify each metal’s portfolio level exposure in GMET. In early 2022, the most prominent metals exposures came in the form of copper, lithium, platinum group metals, rare earth elements, zinc, and nickel.
Q: Does investing in GMET generate Schedule K-1 tax statements?
A: No. Unlike an investment in many commodity strategies, the equities of green metals companies, and thus GMET, do not generate burdensome K-1 tax statements.
Q: How can investors buy VanEck ETFs?
Originally published on May 19, 2022 by VanEck.
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This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results, are valid as of the date of this communication, and subject to change without notice. Information provided by third-party sources are believed to be reliable and has not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of 3rd party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
MVIS Global Clean-Tech Metals Index is the exclusive property of MarketVector Indexes GmbH (a wholly-owned subsidiary of the Adviser), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MarketVector Indexes GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. The VanEck Green Metals ETF is not sponsored, endorsed, sold, or promoted by MarketVector Indexes GmbH and MarketVector Indexes GmbH makes no representation regarding the advisability of investing in the Fund.
Investors can not invest directly in the Index.
Investments in companies involved in the production, refining, processing, and recycling of green metals used to facilitate the energy transition from fossil fuels to cleaner energy sources and technologies are subject to a variety of risks. Under certain market conditions, the Fund may underperform as compared to funds that invest in a broader range of investments. There may be significant differences in interpretations of what is considered a “green” metal and the definition used by the Index Provider may differ from those used by other investors, investment advisers, or index providers. Additionally, there may also be a limited supply of companies involved in green metals, which may adversely affect the Fund.
An investment in the Fund may be subject to risks which include, among others, risks related to investing in green metals, clean energy companies, regulatory action, and changes in governments, rare earth, and strategic metals companies, Australian Asian, European and Chinese issuers, investing through stock connect, foreign securities, emerging market issuers, foreign currency, basic materials sector, mining industry, small- and medium-capitalization companies, cash transactions, equity securities, market, operational, index-tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and concentration risks which may make these investments volatile in price or difficult to trade. Small- and medium-capitalization companies may be subject to elevated risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.