VanEck launches new mining ETF targeting rare earths and strategic metals

Sep 29th, 2021 | By | Category: Commodities

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VanEck has launched a new ETF in Europe targeting companies that mine and process rare earth minerals and so-called strategic metals, such as lithium and cobalt.

VanEck launches new mining ETF targeting rare-earths and strategic metals

Rare earths and other strategic metals are key inputs for many advanced technological and environmental products.

The VanEck Vectors Rare Earths and Strategic Metals UCITS ETF has been listed on London Stock Exchange in US dollars (Ticker: REMX LN) and pound sterling (REGB LN) and on Xetra in Euros (VVMX GY).

While perhaps not as well known as precious and industrial metals, rare earth elements and strategic metals are indispensable ingredients for many of today’s (and tomorrow’s) advanced technologies.

Their deployment is extensive, with rare earth and strategic metals found in satellite components, microchips, LCD televisions, smartphones, aircraft, and rockets, as well as in renewable energy technologies such as electric cars and wind turbines.

Martijn Rozemuller, CEO at VanEck Europe, said: “For technologies like these, which are crucial for combating climate change, these raw materials play a major role. Strong magnets, such as those installed in wind turbines or electric motors, require, among other things, neodymium, which belongs to the rare earths. Lithium, meanwhile, is a fundamental raw material for modern batteries used in electric cars. As the decarbonization of the economy continues, there is now fierce competition for these raw materials. The demand is already high and will certainly increase in the future.”

As is often quoted, rare earths are, despite their name, relatively plentiful in the Earth’s crust. Their “rarity” stems from the fact that they are difficult to mine – they never occur in high concentrations and are usually mixed with other elements.

The specialized nature of the rare earths mining process means that companies are not on many investors’ radars. This ETF is designed to open up this opportunity to a wider audience who may benefit from the growing importance of these key commodities.

Methodology

The fund uses direct physical replication to track the MVIS Global Rare Earth/Strategic Metals Index.

The index constructs an eligible universe of stocks by screening for companies in developed and emerging markets that derive at least 50% of their revenue from the production, refining, or recycling of rare earths and strategic metals. Firms that are deemed to have the potential to generate at least 50% of their revenue from these activities are also included in the eligible universe.

There are currently 17 rare earth metals in the periodic table: cerium, dysprosium, erbium, europium, gadolinium, holmium, lanthanum, lutetium, neodymium, praseodymium, promethium, samarium, scandium, terbium, thulium, ytterbium, and yttrium.

A further 27 elements are considered strategic metals: antimony, arsenic, beryllium, bismuth, cadmium, chromium, cobalt, gallium, germanium, hafnium, indium, lithium, magnesium, manganese, molybdenum, niobium, rhenium, selenium, strontium, tantalum, tellurium, thallium, titanium, tungsten, vanadium, zircon, and zirconium.

The index selects the largest firms while targeting 90% of the total market capitalization of the eligible universe.

Constituents are weighted by float-adjusted market capitalization subject to an individual cap of 8%. The index is reconstituted and rebalanced on a quarterly basis with buffer rules helping to limit unnecessary turnover.

As of the end of September, two-thirds of the index weight was approximately equally allocated between stocks from China (35.0%) and Australia (29.1%). The next-largest country exposures were the US (15.0%), Canada (10.9%), and the Netherlands (4.4%).

The index contained 21 names with all constituents operating in the materials sector. Notable positions included Zhejiang Huayou Cobalt (7.5%), China Northern Rare Earth (6.6%), Ganfeng Lithium (6.3%), Standard Lithium (6.1%), Shenghe Resources (6.1%), Tronox (5.8%), Orocobre (5.7%), and Lynas (5.7%).

The ETF comes with an expense ratio of 0.59%. Income is accumulated within the portfolio.

VanEck offers a further three mining ETFs in Europe. The $630m VanEck Vectors Gold Miners UCITS ETF (GDX LN) and $420m VanEck Vectors Junior Gold Miners UCITS ETF (GDXJ LN) target large-cap and small-cap firms, respectively, within the global gold mining industry, while the $150m VanEck Vectors Global Mining UCITS ETF (GDIG LN) offers a broadly diversified portfolio of mining companies focused on key raw materials such as gold, silver, copper, nickel, zinc, lithium, and iron ore.

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