Optica Capital has launched its first ETF in the US targeting companies producing minerals and materials considered critical to economic growth and national security.
The fund targets companies producing minerals and materials that are essential in the green energy revolution.
The Rare Earths and Critical Materials ETF (CRIT US) has been listed on NYSE Arca with an expense ratio of 0.85%.
Optica, a newly formed fund management company based in Perth, Australia, tapped the services of white-label ETF platform Exchange Traded Concepts in bringing the fund to market.
According to Optica, the ETF delivers access to several cutting-edge themes as the fund’s investment mandate includes materials used in the manufacturing of sustainable energy products, such as electric vehicles, solar panels, and wind turbines; global communications technology, including satellites, smartphones, and computers; and national defense tools, such as submarines and fighter jets.
Optica further notes that the fund highlights the importance of the supply chain process involving rare earths and critical materials that make up some of the world’s most desired products.
Jerry Hicks, CEO of Optical Capital, said: “In recent weeks we have seen how vital and fragile commodity supply chains are to countries. Due to recent world events, the price of nickel has risen sharply and the strategic supply of rare earths has become a major topic of concern.”
Derek Bone, Chairman of Optica Capital, added: “We are aiming to highlight the gaps between increasing demand and deepening shortages of the critical supply of minerals and metals like rare earths, copper, lithium, and cobalt. Considering that it usually takes over ten years from the announcement of discovery to add new minerals and metals into the supply chain, we have an excellent theme for exposure to growth opportunities.”
Methodology
The ETF is linked to the EQM Rare Earths and Critical Materials Index which was developed by Optica in partnership with EQM Indexes, a specialist in thematic index construction.
The index selects its constituents from a global universe of companies with market capitalizations above $250 million and average daily trading volumes greater than $500,000. Only US- or Hong Kong-listed shares of China-domiciled firms are eligible for inclusion.
The methodology screens for companies generating at least 50% of their revenue, as well as those that have the potential to generate 50% of their revenue, from the mining, production, recycling, processing, or refining of rare earths and ‘critical’ metals and minerals.
Optica turned to a list published by the United States Department of the Interior which identifies 50 minerals and metals as critical to the economy, citizen well-being, and national security. Optica also examined similar lists from governments in the European Union, Canada, and Australia.
The list includes aluminum, antimony, arsenic, barite, beryllium, bismuth, cerium, cesium, chromium, cobalt, copper, dysprosium, erbium, europium, fluorspar, gadolinium, germanium, graphite, hafnium, holmium, indium, iridium, lanthanum, lithium, lutetium, magnesium, manganese, molybdenum, neodymium, nickel, niobium, palladium, platinum, praseodymium, rhodium, rubidium, ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium, tin, titanium, tungsten, vanadium, ytterbium, yttrium, zinc, and zirconium.
Constituents are weighted by market capitalization subject to individual stock caps and floors of 10% and 0.20%, respectively. The index is reviewed on a semi-annual basis.
As of 10 March, stocks from the US accounted for nearly a third (29%) of the total index weight with the next-largest country exposures being South Africa (19%), China (17%), Australia (14%), and Chile (7%).
Stocks from the materials sector naturally dominated the index with a combined weight of 93% with the remaining allocation in industrials and energy.
Out of a total of 51 constituents, the most notable positions were Freeport-McMoRan (11.9%), Anglo Platinum (9.8%), Albemarle (7.3%), Sociedad Quimica y Minera de Chile (6.9%), Jiangxi Ganfeng Lithium (6.7%), South32 (5.0%), Alcoa (4.5%), China Molybdenum (4.5%), and Aluminum Corporation of China (4.0%).
The index’s dividend yield is 3.48%.