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Electricity is really just organized lightning. – George Carlin.
Electric vehicles (“EVs”) and renewable energy solutions are on the rise, and central to these technologies are lithium batteries. The lithium-ion battery industry is a complex network comprising raw material suppliers, manufacturers, and component designers. This intricate web of businesses presents a challenge for investors seeking to capitalize on the growing lithium market. One solution is to consider investing in a lithium and battery technology ETF (exchange-traded fund) such as the Global X Lithium & Battery Tech ETF (NYSEARCA:LIT), also known as the LIT ETF. Relative to the S&P 500 (SPY), it doesn't look like a bad potential entry here for outperformance potential.
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The Landscape of Lithium
Lithium-ion batteries are no longer a novelty, thanks to their widespread use in smartphones and tablets. Now, they're revolutionizing the automotive industry, as electric vehicles are rapidly becoming a significant part of automaker portfolios. Considering that nearly 67 million vehicles were sold worldwide in 2021, the growth potential for lithium and battery technology is substantial in the coming decade regardless of one's view of EV makers like Tesla (TSLA) or ESG investing in general.
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The LIT ETF: An Overview
The LIT ETF, offered by Global X, is a fund that provides investors with diversified exposure to the lithium and battery tech industry. This ETF covers a wide range of companies involved in this sector, from lithium mining companies to battery manufacturers to EV automakers that incorporate lithium technology into their vehicles.
Currently, the LIT ETF manages $3.3 billion in investor funds and charges an annual fee of 0.75%. The fund consists of 39 holdings spanning across lithium mining companies, battery manufacturers, and consumer product manufacturers.
The LIT ETF allocates approximately half of its funds to lithium mining companies. The top lithium producer, Albemarle (ALB), is the largest holding in this category. The LIT ETF also includes a significant collection of battery manufacturers, predominantly based in China and South Korea. These companies include Yunnan Energy, Samsung, Panasonic, and LG Chem. Lastly, the LIT ETF has a selection of consumer product manufacturers, with the most well-known being Tesla, the EV pioneer.
Global X
The Bullish Case for Investing in Lithium
With the rise of electric vehicles and renewable energy solutions, lithium is set to play a critical role in the future. Here are a few reasons why investing in lithium through the LIT ETF could be a wise move:
- The adoption of electric vehicles is accelerating globally. This surge in demand is driving the need for lithium-ion batteries, which are a crucial component of electric vehicles.
- As the world transitions to renewable energy sources, the need for efficient energy storage solutions is becoming increasingly important. Lithium-ion batteries offer a promising solution for storing energy generated from renewable sources, such as solar and wind.
- The LIT ETF offers investors diversified exposure to the lithium and battery technology industry. By investing in this ETF, investors can gain exposure to a range of companies involved in various stages of the lithium industry, from mining to manufacturing to consumer products.
Final Thoughts
Investing in lithium and battery technology stocks presents a significant growth opportunity. However, like any investment, it comes with risks, including market volatility and exposure to global supply and demand dynamics. Therefore, it's crucial to carefully consider these factors when deciding to invest in an ETF like the LIT ETF. This is about a long-term relative play independent of short-term risks I've been highlighting on the overall market. And it's one I do think makes a lot of sense for many years.
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The LIT ETF Knows a Thing or Two About Living Large