Rare earths elements (REEs), also known as rare earths metals or simply rare earths, are vital ingredients in an array of everyday products.
Moreover, demand for these materials is increasing, putting a spotlight on related investment opportunities, including the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX ). The $1.1 billion REMX, which turns 12 years old in October, is the original U.S.-listed exchange traded fund dedicated to rare earths equities. The VanEck fund is relevant at a time when domestic policymakers are waking up to the need to diversify the rare earths supply.
“Increased policy focus is a secular tailwind for Metals & Mining ETFs as lawmakers from both parties prioritize mineral supply chain resilience,” says Bank of America. “With global demand for critical minerals like lithium, cobalt, and rare earths set to increase by 400-600% over the next several decades, policymakers have acknowledged that reliance on China and other international suppliers is no longer tenable.”
REMX allocates almost 26% of its weight to Chinese equities, which is reflective of that country’s status as the world’s dominant rare earths exporter. Some of that potential geographic risk is offset by a combined 50% weight to Australian and U.S. stocks.
Recent momentum on the rare earths policy builds on prior efforts and could be relevant over time to REMX investors.
“These policies follow the Trump administration’s 2017 executive order on securing critical minerals and the $800mn in funds for rare earth and strategic minerals research in the $2.3tn Covid-19 relief and omnibus spending bill passed in December 2020,” adds Bank of America.
The fact is that rare earths are used to produce smartphones, are essential ingredients in electric vehicles and other renewable energy technologies, and also have significant uses for the military. That confirms that REMX has attractive long-term tailwinds, which could be enhanced by countries outside of China boosting output of these essential materials.
Adding to the near-term case for REMX are soaring commodities prices and the increasingly sturdy cash flow positions of many U.S. mining companies. The fund also has some appealing technicals, as noted by Bank of America.
“Rare earth metals like lanthanum, neodymium, and cerium are integral components in electronics, including semiconductors and smartphones. REMX has the strongest Technical score among peers, supported by a 1.54 Sortino ratio,” concludes the bank.
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