Invesco has expanded its suite of US-listed commodities ETFs with a basket fund tracking metals widely used in the production of electric vehicles.
The fund is the first US-listed commodity ETF linked to the electric vehicles theme.
The Invesco Electric Vehicle Metals Commodity Strategy No K-1 ETF (EVMT US) has been listed on Nasdaq with an expense ratio of 0.59%.
The ETF is registered under the Investment Company Act of 1940 and, therefore, issues a 1099 tax form rather than a Schedule K-1 which many investors find cumbersome.
The fund is believed to be the first thematic commodity ETF in the US, opening a new avenue for investors to access megatrends such as the energy transition. Historically, thematic ETFs on electric vehicles have focused on the equities of certain mining companies as well as battery and auto manufacturers.
Anna Paglia, Global Head of ETFs and Indexed Strategies at Invesco, said: “The Invesco Electric Vehicle Metals Commodity Strategy No K-1 ETF will be the first non-equity ETF to invest in the electronification of transport, furthering Invesco’s history of pioneering value-added investment strategies that have exciting potential for client portfolios.”
While electric vehicles represent just 3% of the global car fleet today, Bloomberg analysts predict they will account for as much as 60% in 2040. This massive growth is being facilitated by favourable government policies aimed at limiting the impact of climate change – many countries have set dates for the total banning of new internal combustion engines or established targets whereby electric vehicles must make up a certain percentage of auto manufacturers’ sales.
While the proliferation of electric vehicles certainly appears to be a firmly rooted megatrend, the share prices of electric vehicle manufacturers have soared so high in recent years that many investors have become wary of investing due to potentially stretched valuations. By focusing on the upstream components of the electric vehicle value chain, the ETF may appeal to investors seeking an alternative approach to the theme.
Investment approach
The ETF is actively managed although it aims to closely align its holdings with the S&P GSCI Electric Vehicle Metals Index, only taking small active positions in a bid to outperform over the long-term.
Index construction is determined by S&P’s Global Commodity Insights team which selects and weights metals according to their usage within a representative electric vehicle.
As of 25 April, the index consisted of nickel (37.5%), copper (27.1%), aluminium (17.8%), cobalt (9.8%), and iron ore (7.7%). Only metals with established futures markets that meet minimum liquidity standards are included in the index – lithium, a key component in batteries, is a noticeable absentee for this reason.
The ETF’s actual exposure to the underlying metals is obtained through investing in futures contracts or through physically backed exchange-traded commodities. If investing in futures, the fund’s managers aim to select contracts that minimize the negative rolling costs of contango markets.
The ETF has also debuted amid a rapid rise in commodity prices due to disruptions in global supply chains caused by the Covid-19 pandemic and exacerbated by Russia’s invasion of Ukraine. Nickel, copper, and aluminium – the ETF’s largest three holdings – are all trading near or above multi-decade highs.