Are your clients asking about Tesla, lithium or space?
Are your clients asking you why they don’t hold Tesla? If they have an exposure to lithium? Are they looking for an exposure to the renewable energy boom? ETF Securities’ Battery Technology and Lithium ETF, carrying the ASX ticker ACDC, has been seeing significant inflows from investors, as interest in Tesla and all things sustainable grows in popularity around the world.
Firstly, let’s review the current state of play. Newly elected President Joe Biden has placed the US on a charted course towards net-zero emissions by 2050. He seized the opportunity to pull the US back into the Paris climate accord and outlaid plans to invest US$2 trillion ($2.6 trillion) to meet the ambitious climate targets, as well as a national effort aimed at creating jobs to build a modern, sustainable infrastructure and deliver a cleaner energy future. He also announced that the US government will replace its fleet of 650,000 vehicles with electric models. This paved the way for what has been seen globally as the beginning of the decarbonisation and electrification boom.
The lithium boom taking place in Europe and the US is driven by future demands for lithium use in electric vehicles and solar power. In part, the rebound occurred after President Biden indicated that he would support increasing production of crucial metals used to make electric vehicles and solar panels. This led Tesla founder Elon Musk to recognise the potential that lithium deposits could provide to create long-life and low-cost batteries to the EV battery market. Tesla alone needs a lot of lithium. The pandemic also changed the outlook for lithium. The virus had a big impact on downstream demand, which in turn put pressure on pricing, forcing many unprofitable operations to mothball their assets. Like Europe, the US is looking to take control of its own raw material supply chains. The pandemic recovery has clearly been tied towards more sustainable energy, transport and building systems, with demand for more battery-ready lithium likely more than the world can supply. And so, naturally investors are looking for the next Tesla.
Enter – ETF Securities’ ETFS Battery Tech & Lithium ETF (ASX Code: ACDC)
The ACDC ETF portfolio is positioned at the centre of fast-paced action on decarbonisation and electrification. According to ETF Securities, the fund “offers investors exposure to the energy storage and production megatrend, including companies involved in the supply chain and production for battery technology and lithium mining. Demand for energy storage is being driven by the movement towards emissions reduction and renewable energy, such as solar and wind.”
The ETF tracks the Solactive Battery Value-Chain Index, which seeks to reflect the performance of companies that are providers of electro-chemical storage technology and mining companies that produce metals that are primarily used for the manufacturing of battery-grade lithium batteries. ACDC uses a full-replication strategy to track the index, meaning that it holds all of the shares that make up the index, in an equal weighting.
ETF Securities head of distribution Kanish Chugh says: “In the past few months alone, we have seen a surge of investors come into ACDC. This high-performing ETF offers exposure to global companies developing electro-chemical storage technology, mining companies producing battery-grade lithium and manufacturers of electric vehicles.”
Some of the top holdings in the ACDC portfolio include ASX-listed miners Pilbara Minerals (ASX: PLS) and Galaxy Resources (ASX: GXY); car makers Tesla Inc, Renault SA and Nissan Motor Co; and lithium product makers GS Yuasa Corp, Livent Corp and AMG Advanced Metallurgical Group.
“With the changes planned for the US economy, and the impact they will have in other countries, there is a clear-cut case for investing in the themes driving the future, which is where the ACDC fund is positioned,” Chugh says.
Performance has been exceptional into 2021, riding the Tesla boom but with significantly more diversification. In fact, according to ETF Securities Weekly Market Monitor, the 12-month return of ACDC to the 5th of February was 59.6 per cent, placing it third of all ASX-listed ETFs.