The global push toward decarbonization is reshaping energy markets. Besides lifting the prices of commodities that will benefit from this boom, it’s also sparked the launch of new ETFs tracking them.
Among this year’s active issuers is USCF Investments.
The firm has recently added funds such as the USCF Aluminum Strategy Fund (ALUM) and the USCF Sustainable Battery Metals Strategy Fund (ZSB). These focus on the industrial metals increasingly in demand as people’s energy consumption shifts away from fossil fuels.
“The energy transition is here, and we believe that demand for certain metals should increase as the global economy undergoes a process known as ‘electrification,’” said John Love, president and CEO of USCF.
The sustainable battery metals fund uses futures contracts; these are tied to industrial metals; precious metals; and rare earth metals used in batteries, battery-charging infrastructure and sustainable energy generation.
The fund also seeks to achieve a “net zero” carbon footprint by purchasing carbon offset investments in an amount equal to the estimated aggregate carbon emissions of the fund’s holdings.
Copper is another base metal with a bullish outlook.
The typical gas-powered car uses 20 to 50 pounds of copper, while the average electric vehicle uses around 185 pounds. Copper is a key component in these vehicles, powering the motors, batteries and wiring.
A McKinsey & Company report from last year noted, “As the raw materials supplier to the economy, the mining sector will need to grow at an unprecedented pace in order to enable the required technological shifts. The sector will be expected to move at a faster pace, despite its traditional reputation as a long-lead-time, highly capital-intensive industry.”
Another ETF targeting base metals has recently been launched by Sprott ETFs; this one is called the Sprott Energy Transition Materials ETF (SETM).
Instead of owning physical metals, the Sprott fund’s holdings consist of publicly traded mining companies tied to lithium, nickel and other base metals. Mining stocks from companies based in Australia and Canada account for around 53% of the portfolio.
While Sprott ETFs offers a diversified approach to base metals through equities, it also offers more concentrated funds targeted on specific miners. These include the Sprott Lithium Miners ETF (LITP), the Sprott Nickel Miners ETF (NIKL) and the Sprott Uranium Miners ETF (URNM).
Although some advisors may want targeted investment exposure to this theme by using single-commodity ETFs, others may prefer a diversified approach. In both cases, having choices means they get flexible solutions.
“Energy derived from sustainable sources such as wind, solar and hydroelectric power will gradually replace energy generated by fossil fuels,” said Love.
“The infrastructure needed to produce and store that energy, such as in [electric vehicle] batteries, will require substantial amounts of certain metals. As a result, electrification may lead to rising prices for these metals over time,” he added.