Lithium stocks continue to party like it's 1999. Shares of Albemarle (NYSE: ALB), Sociedad Quimica y Minera de Chile, or SQM (NYSE: SQM), and FMC Corp. (NYSE: FMC) -- the three largest lithium producers listed on a major U.S. stock exchange -- have returned 62%, 117%, and 67%, respectively, in 2017, through Oct. 18.
Lithium stocks have been soaring due to the electric car revolution, led by Tesla (NASDAQ: TSLA), which is driving demand for the metal to produce rechargeable lithium-ion batteries that power electric vehicles. The burgeoning energy-storage product market is also poised to become an increasingly stronger demand driver.
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Investors who are interested in lithium stocks but don't want to bet on just one or two players have another option: the Global X Lithium & Battery Tech ETF (NYSEMKT: LIT), the only lithium exchange-traded fund.
Global X Lithium & Battery Tech ETF: 2017 performance & the basics
Before we dig in, you probably want to know how this ETF has been performing, right? It's performed on par with shares of Albemarle and almost as well as those of FMC Corp. so far this year. SQM stock has pulled significantly ahead of the pack in recent months due to market chatter that a Chinese entity is interested in buying a considerable stake in the Chilean company.
The ETF invests in the full lithium cycle, from mining and refining the metal through lithium-ion battery production. The underlying index that the fund tracks had 27 constituents, 22 of which are foreign companies, as of Dec. 30, 2016. The fund had a 63% developed markets and 37% emerging markets mix by dollar amount, as of June 30. The emerging markets' percentage, however, has likely since increased due to shares of Chile-based SQM rocketing higher over the last few months, as previously mentioned.
The fund's current expense ratio is 0.76%, which is moderately reasonable.
The Global X Lithium & Battery Tech ETF: Top 10 holdings
This ETF is not a pure play on lithium since most of its holdings have non-lithium operations. For instance, FMC, SQM, and Albemarle are all diversified specialty chemical companies. In the first half of 2017, lithium revenue as a percentage of total revenue for these companies was 11%, 29%, and 32%, respectively.
Albemarle and SQM are the two global biggies in lithium mining, with FMC likely still in the top five, along with two Chinese companies, Jiangxi Ganfeng and Sichuan Tianqi. Albemarle obtains lithium from brine at sources in Chile and Nevada, and has a hard-rock mining joint venture in Australia. SQM gets its lithium from brine at a Chilean source, while FMC's lithium comes from a brine source that it owns in Argentina.
Samsung SDI, No. 3, produces lithium-ion batteries for a variety of uses and makes advanced materials. Tesla, No. 4, generates most of its revenue from producing electric cars. The company also has an energy business that sells solar panels and roof tiles for homes, and energy-storage products for residential, commercial, and electric utility grid use. Together with its partner Panasonic, the ETF's eighth-largest holding, Tesla built the Gigafactory 1 in Nevada to produce lithium-ion battery cells for its cars and energy-storage products.
Warren Buffett-backed BYD, No. 6, is a leading Chinese maker of electric cars and has other businesses, including making lithium-ion batteries. LG Chem, No. 7, has several businesses, including producing lithium-ion batteries. Panasonic, No. 8, primarily makes electronic and electric products. GS Yuasa, No. 9, produces lithium-ion and lead-acid batteries for a wide range of uses, and has other operations. Lastly, Galaxy Resources owns lithium brine assets and hard-rock mines in Australia, Canada, and Argentina.
Wrapping it up
An ideal lithium ETF, in my opinion, would take into consideration when possible the size of a company's lithium business relative to its overall business. For instance, I think Albemarle (No. 5) should be weighed higher than FMC (No. 1) since it's closer to a pure play on lithium.
That said, the Global X Lithium & Battery Technology ETF does a pretty good job of representing the global lithium realm from mining to production of lithium-ion batteries. It seems a solid option for investors who want broad exposure to the fast-growing lithium space. As previously mentioned, the ETF's expense ratio is a moderately reasonable 0.76%.
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