Green energy metals are a growth area for ETFs, but the industry is split on how to invest in them

Published Wed, Feb 8 202311:34 AM EST

Jesse Pound @/in/jesse-pound @jesserpound

The global push for electric vehicles and renewable energy has sparked a flood of exchange traded funds trying to offer exposure to the businesses, but the wide variety of securities shows that there is no consensus yet on the best way to invest. The latest major ETF launch comes from Sprott, a prominent minerals investing firm based in Canada. Subsidies from the U.S. government and investments from companies including General Motors in battery technology should benefit the mining companies, according to John Ciampaglia, CEO of Sprott Asset Management. "We talk to people all around the world, and there's a very consistent and global theme that's building around energy transition. … It's clearly much further advanced in Europe and China. The U.S. and Canada are quite frankly playing catch up," Ciampaglia said. Sprott's funds, including the Sprott Energy Transition Materials ETF (SETM) , are focused on mining stocks. "We think there's a big opportunity in the upstream part of the supply chain, because that's where you're going to see the most step change happening," Ciampaglia said. Other funds on the market take a broader approach by bundling together mining stocks and battery manufacturers or technology companies, including Global X's Lithium and Battery Tech ETF (LIT) . The Amplify Lithium and Battery Technology ETF (BATT) goes even farther, incorporating electric vehicle stocks such as Tesla in its portfolio. "Our view is that you kind of want to play the value chain, and that probably smooths out a decent amount of the volatility. Because a lot of the time when the technology and software companies are doing well, that may or may not be what's going on with mining," said Christian Magoon, CEO of Amplify ETFs. There were several funds that launched in 2022 that use futures contracts for metals that are used in batteries and other green energy applications, including from Invesco ( EVMT ), KraneShares ( KMET ) and ETF newcomer Element ( CHRG ). However, those funds — which each have different strategies — have so far struggled to attract significant assets and consistent trading volume. While futures ETFs have proved successful in other areas, the price volatility and limited liquidity could be giving some investors pause. The expected energy transition is not always reflected in the trading of the metals themselves, according to Robert Minter, director of ETF strategy at Abrdn, whose firm offers ETFs backed by several physical metals themselves, including silver ( SIVR ). The price of lithium, for example, has cooled in recent months, even though demand is expected to dramatically increase in coming years. . "If you pull up a price graph of lithium, you'll see there was this massive spike and then it crashed. And there are a lot of stories today where there's a fantastic outlook, but you have to get the timing right or you're going to get killed," Minter said. The uncertainty and volatility is something investors should be prepared for whenever they use thematic ETFs, Ryan Issakainen, ETF strategist at First Trust, said during a panel at the Exchange ETF Conference in Miami on Tuesday. "I think one of the most successful ways that a financial professional can use thematic ETFs would be really in a longer-term portion of the portfolio. Because the reality is if you try to time when the best time is to get into a specific theme…you often miss a month like January," Issakainen said.