Rare earths are indeed strategic. In fact, these materials are routinely mentioned in the same breath as strategic metals, and while some experts separate the two, the investment implications and opportunities are remarkably similar.
The VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) is a lone wolf among rare earths exchange traded funds, and that status is paying off this year as highlighted by significant success on the asset-gathering front and a 56.59% year-to-date gain.
Rare earths elements (REEs) actually aren’t all that rare, but they are part of the ongoing geopolitical tensions between the U.S. and China. China dominates the global REE market — a status that many experts believe will be enhanced following the U.S. departure from REE-rich Afghanistan. Conversely, the U.S. has substantial REE demands, but in the eyes of some experts, environmental regulations stand in the way of boosting REE output in this country.
“REEs and strategic metals have been increasingly used in high tech applications linked to defense or the transition to a low carbon world, among others. These uses have pushed demand for many of these metals higher in recent years and current trends indicate that demand may only increase,” says Brandon Rakszawski, ETF senior product manager at VanEck.
REMX Allure
As noted above, rare earths are essential components in a variety of consumer electronics, such as smartphones and a slew of military technologies.
Additionally, REEs are needed for electric vehicles, solar panels, and wind turbines, making the minerals essential in the renewable energy equation. However, unlike copper, gold, and silver, there are no exchange traded products dedicated to individual REEs, meaning that REMX is arguably the best way to get into this segment, particularly for investors that aren’t familiar with the futures market.
“Another way to access this space is through an equity investment in the companies that are involved in the extraction and processing of these metals. Their share price is influenced by the supply and demand dynamics that also influence metals prices. REMX provides global exposure to companies involved in producing, refining and recycling rare earth and strategic metals,” adds Rakszawski.
Another point in REMX’s favor is that it offers leverage to a diverse asset class. There are 17 REEs and 26 strategic metals. REMX components touch plenty of corners of those landscapes.
“Many of REMX’s portfolio companies have broad exposure to more than one rare earth and/or strategic metal, but several metals have had prominent exposure in recent years. REEs, lithium, cobalt, titanium, tungsten, and molybdenum have all been common exposures within REMX’s broader rare earth and strategic metals portfolio,” concludes Rakszawski.
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