Don't Miss Any More Of The Run In This Commodities ETF
Quick. Name a commodity that delivered positive returns in 2015.
Congratulations if lithium was your guess, because you are correct. On the back of demand from consumers such as Elon Musk's Tesla Motors Inc (NASDAQ: TSLA), lithium prices are expected to continue rising this year.
That is good news for the Global X Lithium ETF (Global X Funds (NYSE: LIT)). When LIT debuted nearly six years ago, it was viewed as niche ETF, but it came to market during a period of strength for commodities, so some investors quickly embraced the fund.
Emerging markets stocks were also performing well during LIT's infancy, an important factor considering Chile is one of the world's largest lithium-producing countries. Argentina is another major lithium producer. Well, it definitely is not 2010, but LIT is sort of acting like it is. The ETF is up 5 percent over the past month and more than 8 percent year-to-date, and more upside could be on the way.
Catalysts For Lithium
“We have Tesla in the far corner, building its battery gigafactory in Nevada, for which it needs tons of lithium at a reasonable price, and just last week Tesla announced its plans for the Model 3, which has already hit over 300,000 pre-orders. To give you an idea of just how meaningful this is, Tesla produced less than 50,000 cars last year. Elon himself mentioned during the unveiling that Tesla will be gobbling up much of the world’s lithium supply with plans to produce 500,000 EVs per year,” reports OilPrice.com.
Allocations And Holdings
Tesla is LIT's fifth-largest holding at a weight of 5 percent, but that is dwarfed by the nearly 20 percent the ETF allocates to FMC Corp (NYSE: FMC).
At the geographic level, LIT devotes about 35.6 percent of its weight to U.S. stocks, but the ETF has ample emerging markets leverage. Fortunately for conservative investors, it is of a lower beta variety as South Korea, Taiwan and Chile combine for over 32 percent of the ETF's weight. Argentina, home to the world's largest lithium mine, is not represented in LIT. LIT's beta against the MSCI Emerging Markets Index is just 0.74.
“The fundamentals here are impressive, and the catalysts for lithium prices are spectacularly clear—all of which is pushing prices up and creating an aggressively competitive playing field that is likely to see a lot of acquisition talk,” added OilPrice.com.
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