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CBS 60 Minutes Highlight Put Rare Earth ETF in Focus - ETF News And Commentary

Sweta Killa

CBS’s weekly news show “60 Minutes” highlighted the presence of rare earth metals in almost everything including miniaturization, electronics, fiberoptics, and other technologies. Rare earth metals have wide usage raging from jet engines, hybrid technologies, defense missiles and flat screen TVs, to a host of other applications, suggesting that demand is on the rise.


As per the report, rare earths metals are crucial elements in a digital age and play an important role in the development of green tech and defense industries. China dominates the rare metal industry as an exporter and producer. Notably, it accounts for about 90% of the mining, refining and processing of rare earths.


Since China has the monopoly over rare earths, the news raised concerns over the security of supply for rare earths in the U.S. However, a new report from Roskill states that the dominance of China in the rare earths supply is expected to fall to 75% by 2020 as new sources of supply from the rest of the world come online (read: China ETFs: Bull or Bear in the Year of the Goat?).


The rare earth metals market is expected to grow at a steady rate over the next five years, according to the Transparency Market Research. Rising demand for rechargeable batteries, portable equipment, electronics, permanent magnets and computers will continue to fuel growth in the market.


Market Impact


The shares of rare earths got a boost following the news highlights. Molycorp Inc. (MCP), the biggest U.S. rare earths supplier, was a star performer in Monday’s trading session, as the stock surged over 26% on the day. Other companies such as Rare Element Resources (REE) and Avalon Rare Metals (AVL) gained 22.6% and 8.6%, respectively.


The smooth trading has also been felt in the ETF world as Market Vectors Rare Earth/Strategic Metals ETF (REMX) gained 2.6% on the day.


REMX in Focus


The ETF provides pure exposure to 22 companies primarily engaged in mining, refining and manufacturing of rare earth/strategic metals by tracking the Market Vectors Global Rare Earth/Strategic Metals Index. From a country look, Chinese firms dominate the portfolio with one-fourth share, closely followed by Australia (16.9%) and the U.S. (16.2%).


The fund is heavily concentrated on the top 10 companies, which account for nearly 62.4% of the assets. Tronox, Iluka Resources and Hunan Non-Ferrous Metal are the top three holdings making up for a combined 22.8% share. Other securities hold no more than 6.51% of total assets. About 81% of the portfolio is allocated to the metals & mining industry while chemicals, steel, electronic components and gold mining take the remainder (read: Gold Mining ETFs: What's Behind the Extremely Bearish Trend?).  


REMX is the only ETF targeting the pure rare earth metal space having AUM of $55.2 million and average daily volume of 18,000 shares. The product charges 57 bps in annual fees and expenses and is down 1.2% in the year-to-date timeframe. Investor should note that the fund gained 2.6% in yesterday’s trading session following the growing of rare metals news.


Bottom Line


Most commodity producers have seen a bumpy road over the past year due to subdued global trends and broad commodity weakness. Additionally, weakness in China, a strong dollar and sluggish industrial production figures across the globe continue to weigh on many mineral and natural resource prices. While the global fundamentals are not in favor, the positive news on rare earth metal could provide some lift to the ETF at least in the near term (read: all the Material ETFs here).


Further, since the fund’s valuation seems reasonable after falling over 26% in the trailing one-year period, this could be the time to take a closer look at REMX for a new way to play commodity mining that promises a bright future. The fund offers a more diversified way to target rare earths for investors who should have the patience for extreme volatility.


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