Investing in energy transition minerals such as lithium, uranium, and copper is becoming increasingly popular as the world shifts towards a more sustainable and environmentally friendly clean energy mix that divests from fossil fuels like coal, oil, and natural gas.
These minerals are critical components in the production of renewable energy technologies such as lithium-ion batteries, nuclear reactors, and wind turbines. The demand for these minerals is expected to grow as governments around the world look to reduce their carbon footprint.
Lithium, in particular, is poised for significant growth as demand for electric vehicles (EVs) becomes more prevalent and battery technology improves. Copper, which is used in a variety of applications, including wind turbines and electric vehicles, is also set to benefit from the energy transition. Uranium remains a high-demand and scarce input for nuclear fission reactors.
Investing in energy transition minerals is not without its challenges, however. The base materials sector can be volatile, and the supply of these minerals is subject to fluctuations like any other commodity due to geopolitical tensions and natural disasters.
Because investing in individual mining companies that extract these minerals can be risky, investors may want to consider investing in exchange-traded funds (ETFs) that offer exposure to a basket of mining companies involved in lithium, copper, and uranium.
Luckily for investors, Sprott Asset Management recently announced the launch of five ETFs focused on equities that represent the aforementioned three minerals and the overall "energy transition materials" theme. Let's break down the new ETFs and see what they have to offer.
Sprott Energy Transition Materials ETF (SETM)
SETM is the ETF to buy for investors looking for broad, pure-play exposure to a basket of global energy transition materials equities. The ETF's current 111 holdings focus on companies that produce minerals essential to the generation, transmission and storage of clean energy. This includes the following minerals categorized based on three themes:
- Storage: lithium, nickel, manganese, cobalt, and graphite.
- Generation: uranium, silver, rare earth metals.
- Transmission: copper.
The ETF's composition is fairly evenly distributed between small (21.45%), mid (40.68%) and large-cap (37.87%) equities, with a majority of the holdings coming from Canada (27.7%), Australia (24.8%), and the U.S. (17.4%). SETM currently charges a 0.65% expense ratio.
Sprott Lithium Miners ETF (LITP)
Investors looking for focused exposure to lithium mining equities can use LITP, which holds global lithium producers, explorers, and developers. These equities stand to benefit from the continued growth of the EV industry due to the critical role of lithium when it comes to inputs for rechargeable battery technology.
LITP currently has 45 holdings, most of which originate from Australia (43.1%), the U.S. (20.8%), and Canada (14.4%). 95% of its portfolio is categorized by Sprott as lithium equities, giving it good pure-play exposure. Like SETM, LITP is also evenly distributed between small, mid, and large-cap equities. The ETF also charges a 0.65% expense ratio.
Sprott Uranium Miners ETF (URNM)
Investors interested in benefitting from increased demands in nuclear energy can invest in its base input, uranium, via global miner equities. The ETF to use here is URNM, which is NYSE-listed and tracks the North Shore Global Uranium Mining Index (URNMX). This ETF holds companies that devote 50% of their assets to uranium mining, exploration, development, production, or royalties.
Unlike the previous ETFs, URNM's geographical focus is Canada at 55% of the portfolio. There is also a much greater small-cap focus at 52%. The ETF currently holds 36 companies and charges a 0.85% expense ratio. For investors who wish to go more speculative, Sprott offers a companion ETF, the Sprott Junior Uranium Miners ETF (URNJ).
URNJ focuses more on mid, small, and micro-cap uranium mining companies. These companies are classified as "junior miners" meaning that they primarily engage in the exploration and development of new prospective uranium deposits. As such, they tend to be more speculative and volatile than senior miners. URNJ has 35 holdings, mostly from Canada and charges a 0.80% expense ratio.
Sprott Junior Copper Miners ETF (COPJ)
Finally, Sprott offers COPJ, which offers exposure to junior copper miners. This approach allows investors to gain copper exposure without the use of futures contracts. As a junior miner ETF, COPJ is dominated by small-cap stocks which account for roughly 79% of its holdings. Once again, Canada is the largest geography represented at 57% of the ETF's portfolio.
While the previous ETFs focused on minerals used to store or generate clean energy, COPJ offers exposure to the transmission theme. Due to its high conductivity and ductility, copper is the primary mineral used to transmit electricity and in a variety of electronic applications, especially in the construction of electric vehicles. COPJ charges a 0.75% expense ratio.
This content was originally published by our partners at ETF Central.