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Inside The Surge in Lithium ETF

Lithium is currently on fire as the drive for electric cars has spurred demand for lithium batteries.

The electric-powered vehicles are gaining immense popularity thanks to technological development, improving cost economics, government support and increasing acceptance of the powertrain by both customers and automakers.

Many countries will phase out internal combustion cars over the next few decades. Notably, the United Kingdom, which accounts for 6% of global auto sales, has banned the sale of all new gasoline and diesel cars starting in 2040. China is also making a push into the electric car market as it is working to end sales of fossil-fuel-powered vehicles (read: Here's Why China Tech ETFs Are Surging).

Should other countries follow suit, the electric-fueled vehicles will continue to be a big boon to the lithium batteries market. According to Zion Market Research, the global lithium-ion battery market is expected to witness a CAGR of 13.7% between 2017 and 2022 with revenues of $67.7 billion by the end of 2020.

While each electric carmakers has huge demand for the metal, Tesla TSLA is the most high-profile consumer of lithium. This is especially true as mass production of lithium ion batteries at Tesla’s Gigafactory is picking up. Tesla aims to become the world’s largest lithium-ion battery producer. The production of these batteries at their Gigafactory has already started and is expected to reach full capacity by 2018 (read: Tesla to Drive These ETFs on Solid Outlook).

Given the bullish fundamentals, the only equity-based Global X Lithium & Battery Tech ETF LIT is in the spotlight. It offers targeted thematic play on lithium and batteries.

The enthusiasm over lithium demand has prompted investors to pour into LIT at a faster pace. As such, the lithium ETF has gathered $263.2 million in capital so far this year, propelling its AUM to $472.5 million. Average daily volume is also solid as it exchanges nearly 162,000 shares in hand.

Given this, it might be worth it to shed some light on this ETF and its holdings for those who are unfamiliar with the product, but are thinking about jumping in on the space. Below, we highlight some of the key details regarding LIT, which makes it one of the top performing ETFs of this year (read: Lithium ETF Hits New 52-Week High).

LIT in Focus

The product provides global exposure to the broad range of firms engaged in the “full lithium cycle,” from mining and refining the metal through battery production by tracking the Solactive Global Lithium Index. It gives investors direct exposure to lithium prices, with additional diversification across lithium miners and battery producers.

The ETF holds 28 stocks in its basket with heavy concentration on the top two firms that collectively make up for 41.8% of the assets. Other firms do not hold more than 6.50% share. American firms dominate the portfolio with 39% share while Chile and South Korea round off to the next two spots with a double-digit allocation. From a sector look, the ETF is heavy on materials with 63% share, closely followed by technology (14), consumer cyclical (13%) and industrials (11%).

Additionally, the product has a slight tilt toward mid-cap securities, accounting for nearly half of the portfolio while the remainder is split between mid and small caps. It is a bit expensive, charging 76 bps in annual fees from investors. The ETF is easily crushing the broad material ETF XLB by wide margins gaining 49.4% year to date (see: all the Material ETFs here).

Bottom Line

Given a broad-based surge in demand for lithium battery, investors should consider this ETF for outperformance.  

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