Catalysts Abound for Soaring Lithium ETF | ETF Trends

The Global X Lithium & Battery Tech ETF (NYSEArca: LIT) is up almost 9% over the past month, a move confirming the fund is being helped by Tesla’s jaw-dropping run into the four-digit club, but there’s more to the story here and that’s to the benefit of LIT investors.

LIT tracks the Solactive Global Lithium Index. The underlying index is designed to measure broad-based equity market performance of global companies involved in the lithium industry. As a thematic ETF, LIT has a growth feel, but some of its growth components are now offering attractive value.

LIT is getting a lift from a spate of encouraging news pertaining to the booming electric vehicle market.

“Supply overhangs and then the coronavirus pandemic had crushed short-term prospects for the minerals used to make rechargeable batteries,” reports Bloomberg. “But new government commitments to green transport in China and Europe, as well as curtailments to mining and future investments, have led to a growing consensus the markets are bottoming out.”

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The increased demand for lithium-ion batteries, which will help generate more power compared to ordinary batteries, will be used as an alternative source of power for electric and hybrid vehicles.

“Exuberance about the future for electric-powered vehicles led to an oversupply of metals such as lithium and cobalt, sending prices tumbling by more than half from their 2018 peaks. Then just as some optimism was returning to the markets, the coronavirus pandemic triggered a demand slowdown that clouded recovery prospects for those metals as well as nickel,” according to Bloomberg.

Furthermore, due to the increased concerns over environmental issues, global governments are supporting the development of electric vehicles worldwide. Consequently, the high voltage battery market will continue to enjoy increased interest and investments as electric vehicles is expected to drive the growth.

As demand for electric vehicles and the batteries that power them continue to rise from more environmentally friendly consumers, something like the Global X Lithium & Battery Tech ETF may continue to capture the growth opportunity. LIT tracks the Solactive Global Lithium Index, which is designed to measure broad-based equity market performance of global companies involved in the full lithium cycle from mining and refining the metal, through battery production.

“While shorter-term forecasts have been reduced, the longer-range outlook remains impressive. BloombergNEF predicts global electric-vehicle sales will return to growth over the next few years, rising from 2 million last year to 8.5 million by 2025, then climb to about 26 million by 2030,” notes Bloomberg.

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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.