First Trust unveils two new thematic ETFs in Europe

Jan 25th, 2024 | By | Category: ETF and Index News

First Trust Global Portfolios has launched two new equity ETFs in Europe providing exposure to the ‘future economy metals’ and ‘scarce resources’ investment themes.

Rupert Haddon, Managing Director at First Trust.

Rupert Haddon, Managing Director at First Trust Global Advisors.

The funds are the First Trust Indxx Future Economy Metals UCITS ETF (METL) and First Trust Bloomberg Scarce Resources UCITS ETF (SCAR).

They have listed on London Stock Exchange in US dollars and pound sterling, each with an expense ratio of 0.65%.

Future Economy Metals

METL focuses on companies engaged in the discovery, extraction, and processing of certain metals and minerals considered vital for powering the energy transition and driving advancements in critical computing technologies. The fund strategically targets sectors integral to this shift, including semiconductor manufacturing, wind turbine production, energy storage solutions, electric vehicle (EV) and battery development, and hydrogen energy production.

Given the increasing reliance on these technologies, the International Energy Agency (IEA) projects a dramatic surge in demand for these key metals and minerals. By 2050, it’s expected that this demand will increase sixfold, spurred by the global push towards a sustainable, carbon-neutral economy.

Rupert Haddon, Managing Director at First Trust Global Advisors, commented: “METL offers investors a unique opportunity to gain exposure to companies enabling the future economy through their involvement in the critical supply chain of more well-known metals like copper and aluminum as well as rare earth and other critical materials. As technologies like AI and solar advance, the companies producing the necessary metals should be poised for growth.”

METL tracks the Indxx Global Future Economy Metals Index which selects its constituents from a universe of developed and emerging market companies with market capitalizations greater than $500 million.

The methodology screens for companies that derive at least 50% of their revenue from three segments of metal and mineral production: Sustainable Energy (companies that are involved in the procurement and provision of metals that are used in the production of solar and wind power plants), Future Tech (companies that supply silicon, germanium, gallium, hafnium, tin, tantalum, and indium to electronic chip manufacturers), and Next-Gen Mobility (companies that supply of metals used in the manufacturing of batteries for electric vehicles).

Constituents are weighted by float-adjusted market capitalization subject to a single security cap of 8% and a cumulative cap of 40% on all stocks with individual weights above 5%. Reconstitution and rebalancing occur semi-annually.

Scarce resources

SCAR, meanwhile, targets companies addressing geopolitical and energy security trends and global resource challenges. The firms selected include those providing the essential resources that form the bedrock of societal needs, such as food, energy, base metals & materials, and security.

Haddon added: “The ongoing shifts stemming from global conflicts, inflation, and escalating energy demands are set to remain significant themes for the foreseeable future. As demand continues to outpace supply, we believe the competition for limited resources will intensify, granting companies providing these essential products and services continued pricing power. These critical sectors stand to benefit from this trend and play an important role in the evolving global landscape. This presents compelling opportunities for investors.”

The fund is linked to the Bloomberg Scarce Resources Index which utilizes Bloomberg’s industry classification scheme to screen for companies aligned with five essential sectors: Fuel, Security, Clean & Renewable Energy, Agriculture, and Rare and Precious Metals.

The index selects the largest ten companies within each category, totalling 50 stocks. This selection is balanced with a uniform 20% allocation to each of the five categories, while companies within each category are weighted by float-adjusted market capitalization. Rebalancing occurs quarterly.

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