This Lithium ETF Could Offer A Charge For Investors In The EV Space

Highly reactive and flammable, lithium is one of the alkali metals in the periodic table. The metal has diverse industrial applications and can be found in heat-resistant glass, aircraft, glass-ceramics and batteries. Lithium prices have recently skyrocketed due to accelerated demand and concerns about limited raw material supply.

According to pricing agency Fastmarkets:

“Demand continues to rise in 2021, but supply is still tight. We forecast excess supply of just 3,000 tonnes lithium carbonate equivalent (LCE), down from 54,000 tonnes LCE in 2020.”

Lithium-ion batteries are an essential component of renewable energy solutions. They are used in a broad range of products, like electronics, wireless headphones, hand-held power tools, electrical energy storage systems and even toys. Moreover, these batteries are currently indispensable, especially for cutting-edge electric vehicles (EVs).

Recent metrics suggest:

“The global lithium battery market is projected to grow substantially in coming years, from 30 billion US dollars in 2017 to over 100 billion US dollars by 2025.”

In fact, according to a recent study by Bank of America, car manufacturers will likely face an intensifying threat of global battery shortage in a couple of years.

Unlike many other metals, lithium cannot be traded as a commodity and, until recently, there was no futures market for investors. This meant that traders could only typically gain exposure to lithium through companies involved in the mining or processing of lithium for commercial purposes.

In July, however, the London Metal Exchange (LME) and Fastmarkets launched a new cash-settled futures contract for lithium hydroxide—the LME Lithium Hydroxide CIF (Fastmarkets MB).

Battery-grade lithium prices have been surging, especially in China . Prices in Europe and the US are also following the uptrend.

Therefore, today we introduce an exchange-traded fund (ETF) that could be appropriate for readers who believe lithium prices will continue to rise in future quarters.

Current Price: $79.73
52-Week Range: $38.73 – $87.20
Dividend Yield: 0.15%
Expense Ratio: 0.75% per year

The Global X Lithium & Battery Tech ETF (NYSE:LIT) provides exposure to a broad range of lithium-related global equities, like lithium miners and battery manufacturers. The fund, which started trading in July 2010, tracks the Solactive Global Lithium Index.

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LIT currently has 37 holdings. Around half of the companies are China-based, followed by those from the US (22.01%), South Korea (8.3%), Australia (6.8%) and Japan (4.2%).

In terms of sectors, materials have the biggest slice, with 48.2%; followed by industrials (27.8%); information technology (11.7%) and consumer discretionary stocks (11.5%). The top 10 holdings comprise around 60% of the net assets of $4.8 billion.

Among the leading names in the roster are the world’s largest lithium producer Albemarle (NYSE:ALB), China-based lithium battery separator film provider Yunnan Chuangxin New Material (SZ:002812), Chinese Ganfeng Lithium (OTC:GNENF) as well as EV heavyweight Tesla (NASDAQ:TSLA).

So far this year, the ETF has returned more than 29% and hit a record high in August. The 52-week low of $38.05 was seen a year ago, on Sept. 29. Since then, LIT has more than doubled.

Trailing price-to-earnings (P/E) and price-to-book (P/B) ratios stand at 33.55x and 4.72x, respectively. Interested readers could regard a potential decline toward $75 as a better entry point.

Given strong growth demand for clean energy and sustainable solutions, lithium prices will likely stay strong. Therefore, investing in lithium stocks or related ETFs could offer solid returns for the long haul. However, investors should be ready to embrace choppiness in the short run.

Written By: Investing.com