As the lithium fund holds a variety of companies that are exposed to multiple revenue streams it might be of interest for investors to note that on a weighted average basis, the implied exposure to lithium from the top 10 holdings is equivalent to only approximately 30 percent of the fund’s assets, based on the reported segmented revenue from the latest annual company filings.
In the U.S. alone, there were 914 listed Exchange Traded Funds (ETFs) at the end of June, which represents an increase of 21 percent from a year ago. According to the National Stock Exchange and since 2007, ETFs have accounted for $480 billion in net cash inflows, bringing total assets to $780 billion. Investors that wish to have exposure to gold or silver can select from a diverse multitude of products that may satisfy their specific objectives, including everything from commingled precious metal mining equities of varying market capitalizations to physical bullion.
A casual overview at the fund universe provides an overwhelming portfolio of investment vehicles to choose from. For investors that prefer to hold the physical metals than less direct exposure through mining companies, there are still numerous options traded on the major stock exchanges including Zurich, Mumbai, London, Paris and New York. In fact, as of October 2009, gold ETFs alone, accounted for 1,750 tonnes of gold in total for retail and institutional investors. There are also closed-end funds (CEFs) and exchange-traded notes (ETNs) that benchmark the dynamic price of the yellow metal.
As of last Friday, the first “lithium ETF” was launched by Global X, which has recently released funds targeting silver miners and copper producers. The Global X Lithium ETF (NYSE:LIT) tracks the Solactive Global Lithium Index, a benchmark made up of large, liquid companies in the lithium space. As of the fund’s launch last Friday, the underlying assets consisted of about 51 percent mining companies and about 49 percent lithium-ion battery makers.
This is a key point for investors, because LIT does not provide direct pure play exposure to pick-and-shovel explorers, developers, and producers. However it will also enable access to some of the major battery manufactures.
Jose C. Gonzalez, Chief Operating Officer for Global X Funds, said in the launch announcement, “[Lithium] has the capacity to store electric energy more efficiently than any other material. Efficient electric energy storage is necessary for all green energy products and the computer systems that control them — like electric cars, solar, wind and water power.”
It is widely accepted that the battery producers are a critical piece in the demand equation for the lightest metal in the world with only three electrons and protons per atom, giving any battery made from it a high energy-to-weight ratio. That is probably why prices for lithium metal have tripled in the past 10 years, according to Credit Suisse.
From the inception, the fund has exposure to seven countries; however, the largest exposure is domiciled in U.S. companies, reflecting 49 percent of the fund. The Chilean miner Sociedad Quimica y Minera (NYSE: SQM) took the highest fund weighting at 20.16 percent with additional highly weighted companies including FMC Corporation (NYSE: FMC) at 16.67 percent and Rockwood Holdings Inc. (NYSE: ROC) at 7.93 percent rounding out the top 3.
The fund saw relatively brisk trading in its first day on the exchange, of more than 44,000 shares. The market continues to demonstrate strong demand for the product with the price of the ETF now trading in the $16.38 range, an appreciation of 4 percent since the launch. As of July 27, Global X was indicating that the fund at a 7 cent premium to the net asset value of its underlying holdings.
As the fund holds a variety of companies that are exposed to multiple revenue streams it might be of interest for investors to note that on a weighted average basis, the implied exposure to lithium from the top 10 holdings is equivalent to only approximately 30 percent of the fund’s assets, based on the reported segmented revenue from the latest annual company filings. An additional point of interest for investors might be that the fund has an annual expense ratio of 0.75 percent, making it slightly more expensive than Global X’s silver or copper miner ETFs.
R. Marcelo Claure, a Bolivian entrepreneur and investor in MC Capital Advisors, provided the seed capital for the lithium ETF, which was used to create the fund’s initial share offering. As a result of the initial investment he will receive half the fund’s profits. Interestingly enough, Global X expects this fund to generate most of its demand from institutional investors as opposed to retail investors. As Global X Chief Executive Officer Bruno del Alma told Index Universe on Friday, “We’ve had a large number of inquiries about this product, even months before launch, coming from some of the largest and most sophisticated hedge funds and asset managers out there. This will be an ETF led by heavy institutional interest and it could easily become our flagship fund this year. What’s more, LIT apparently even had its genesis in a special request from hedge fund MC Capital Advisors, who went to Global X seeking a way to allow large investors access to the space.”
With help from Assistant Editor Vivien Diniz