Wednesday’s ETF To Watch: Lithium ETF (LIT)

by on November 24, 2010 | ETFs Mentioned:

With the end of the year approaching, 2010 has seen the introduction of a variety of ETFs into the marketplace targeting numerous industries and countries. The majority of these new funds have given investors targeted exposure to countries and sectors, offering new ways to slice and dice the universe of investable assets within the efficient ETF structure. One fund which has popped up over the summer that caught the eye of many investors was the Global X Lithium ETF (LIT). Since debuting in late July, the fund has managed to amass close to $100 million in assets–an impressive start for a new product.

Some of the popularity of the Lithium ETF likely stems from renewed interest in the clean energy movement. The metal is a crucial component of a variety of clean energy technologies, but derives its greatest use in lithium ion batteries. These batteries power roughly 90% of laptops and more than 60% of mobile phones. As a result, total lithium demand nearly doubled in the past decade, and could continue higher with the widespread adoption of electric cars such as the Chevy Volt or the more high-end Tesla Roadster [read Three ETFs To Play The Coming Energy Storage Boom].

This surge in lithium demand has made mining the metal all the more important, putting the main producers of the commodity into focus. The world’s largest miner of the metal, Chile-based Sociedad Quimica Y Minera De Chile SA (SQM), has seen its shares jump by over 30% so far in 2010 and has skyrocketed by more than 300% in the past five years. If this trend is to continue into 2011, the company will have impress investors later today with its Q3 earnings report. The pressure will likely be on SQM given the general commodity boom as well as the robust earnings that the company reported last quarter; earnings for the first half of the year came in with an annual net income increase of 4.2%. Meanwhile, revenues surged across the board, but were especially robust for the lithium division of the company, which posted a revenue increase of 47.6% over the same period a year ago [see Inflation Fighting ETFs Back In Focus].

With this earnings report for a key component–SQM makes up 23.4% of LIT–the Lithium ETF should be active in Wednesday trading. The fund tracks the Solactive Global Lithium Index, which comprised of companies globally that are primarily engaged in some aspect of the lithium industry such as lithium mining, exploration and lithium-ion battery production. In addition to a heavy weighting in SQM, FMC Corp–an American-based company that produces lithium–also recieves a large allocation, making up about 17% of LIT.

In total, the fund offers exposure to 19 companies, with roughly half going to international markets. From a sector perspective, LIT is split down the middle between lithium miners and lithium battery manufacturers. Although the fund is still very young, it has provided quality gains for investors; LIT has surging by more than 25% since its inception. Should SQM beat its marks and post solid guidance for the rest of the year and 2011, look for LIT to continue its march higher to close out 2010 [also see Van Eck Launches Rare Earth/Strategic Metals ETF].

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Disclosure: Eric is long LIT.