A global transition to displace fossil fuels will help accelerate growth for clean energy technology. This will push the demand higher for energy transition materials.
From a heavier reliance on solar power to increased production of electric vehicles (EVs), this technology will require the materials for manufacturing. In the case of EVs, demand has yet to catch up with supply, but in certain countries like China, sales are steadily increasing.
Furthermore, as material costs for clean energy technology falls, adoption will also rise.
“While high-profile technologies like electric vehicles (EVs) capture headlines, it is easy to overlook one of the most important secular changes in global energy supply—the steady displacement of fossil fuels by renewables,” a Sprott Insights report noted, saying that renewable energy “benefits from advancements in cost and efficiency. It is seeing costs plummet and adoption rates rise quickly. In contrast, fossil fuels are extracted commodities with limited cost efficiencies and are highly energy inefficient.”
Benefitting from the Growth
The growth of clean energy adoption will set into motion various investment opportunities. One of those to consider is the Sprott Energy Transition Materials ETF (SETM ).
“The shift from fossil fuels to renewable energy sources is being driven by exponential growth in clean technologies, peaking fossil fuel demand, and a global race for leadership in the energy sector,” the Sprott Insights report added. “At its core, the transition embodies the dichotomy between commodities and technologies. New energy sources, which are manufactured, modular, scalable and clean, stand in stark contrast to old energy sources, which are centralized and both carbon- and capital-intensive.”
SETM seeks to provide results corresponding to the total return performance of the Nasdaq Sprott Energy Transition Materials Index. That index essentially tracks the performance of a selection of global securities in the energy transition materials industry.
Analysts also expect demand to rise for these materials. In turn, the demand for miners that add to the global supply will also increase. In order to capture this growth potential, SETM provides investors access to miners producing key metals like lithium and copper for electric vehicles.
Because the fund invests in miners of various metals, it offers diversification in the critical materials industry. Furthermore, the fund also offers global diversification regarding country exposure. Canada, the United States, and Australia round out its top three country allocations. Additionally, there’s also diversification as the fund spreads its assets over large-, mid-, and small-cap companies to offer a balanced market-cap blend.
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