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Global X Lithium ETF (LIT) Analysis reveals it to be a Battery and Chemicals ETF rather than a Lithium ETF

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In my earlier post about the launch of a new Lithium ETF,I had written briefly about the ETF without going into any details about the holdings of the ETF and its suitability as an investment option.A Deeper Analysis of the ETF reveals it to be more of a Battery and Specialty Chemicals ETF rather than a pure play Lithium ETF.In fact of the total overall revenues of the ETF ,I would estimate that only a very small portion of around 10% would be coming from Lithium Sales.Around 40-45% of the ETF holdings are concentrated in Battery Companies many of which I would not invest in.This ETF is therefore not an appropriate product for believers of a Peak Lithium theory.Also the valuation of the ETF is quite high at >20x for the top 3 holdings and lots of loss making holdings which makes it fairly overvalued in my opinion.Here are the other notable features of the Global X Lithium ETF (LIT).

1) Expense ratio is ok at 0.75% considering that the ETF holdings are spread around the world markets with 60% of the holdings being non-US ones

2) 40-45% of the Holdings are made of Battery Companies like Ener1,A123 Systems,Valence Technologies ,Exide.There are also some conglomerates like Sanyo and Saft Technologies which have a very small battery division.

3) 43% of the ETF is invested in the top 3 holdings.The biggest holdings are Rockwood,SQM and FMC Holdings.Note these 3 are the biggest Lithium producers in the world with mines in Argentina and Chile.However these companies are largely chemical companies with only 10-20% of their revenues being derived from Lithium sales.This means that a LIT investor automatically becomes a large specialty chemicals investor as well

4) The ETF is modeled after Solactive Lithium Index and has 20 holdings in total.The ETF was launched on July 23rd and has around  $20 million under management.

5) 40% of the ETF holdings are from the USA and 60% of the holdings are from abroad.The Fund lists 51% of the holdings from Lithium Mining and Processing and the rest from Lithium Batteries but the fact of the matter is most of the market cap of the ETF is non-Lithium related.For example Exide Industries main business  is lead acid batteries rather than Lithium Batteries.

Summary

The ETF does not make much sense for any class of investor.A Lithium investor would be better off investing in Rockwood,SQM and FMC with appropriate offsetting positions in the agri and specialty chemicals sector.A Battery Investor should invest in BYD,A123 Systems,Ener1 etc. rather than Sanyo,Exide and Saft.Also a lot of the companies in the ETF have never made profits and are high risk in nature while stable holdings like Rockwood,SQM are expensively valued at the moment.I would advise against investing in this pseudo Green ETF which is only masquerading as a Lithium ETF.

PG

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in

One Response so far | Have Your Say!

  1. Retirefund

    Re: “A Lithium investor would be better off investing in Rockwood,SQM and FMC”.

    You forgot the “largest pure lithium producer” in the “big four”, Talison Lithium.

    Up until tomorrow, a private company, Talison is going public on the TSX under the symbol TLH (tomorrow, Sept 23rd, 2010)

    Talison is the largest lithium supplier into China (over 66%) and has been producing lithium from it’s two plants in Greenbushes Australia for over 25 years. It recently merged with Canadian Junior, Salares Lithium, thereby gaining the “Salares 7 project” 114,000 hectares encompassing 7 salars in the Atacama desert of Chile, a premium brine property.

    LIT will have no choice but to add Talison near the top of it’s ETF.

    Disclosure: long TLH