It’s hard to say what role—if any—rare earths will play in trade negotiations, Morgan and Rakszawski both say.
Looking at REMX, the fund provides access to more than just rare earths with its inclusion of what VanEck calls strategic metals such as tungsten and manganese. The fund follows the market-cap weighted MVIS Global Rare Earth/Strategic Metals Index composed of 20 mining companies. The largest country weights are China (26 percent), Australia (25 percent) and Canada (10 percent). It has $257 million in assets under management, and about $140 million has come within the past two weeks, Rakszawski says. REMX has an expense ratio of 0.59 percent.
Frankly, the fund’s performance has been erratic, if not poor. While it’s up 7 percent year to date, it’s down 37 percent on a one-year basis. It has an average three-year return of 0.5 percent, but has posted an average annualized loss of 12 percent during the past five years. The closest comparison for a benchmark would be Morningstar’s equity precious metals category, which is up 2 percent year to date, down 10 percent on a one-year basis, down 3.6 percent on a three-year basis and down 2 percent on a five-year basis.
Rakszawski says REMX was created to provide access to an otherwise difficult-to-trade part of the market.
“I would never discuss this with clients and investors as a core position,” he says. “I think you have to be aware of the industry and have some sort of view on where you are in a commodity cycle, and where supply and demand trends are heading.”
Even if rare-earth prices skyrocket and become a key part of negotiations, Morgan says don’t expect the U.S. rare-earth mine in Mountain Pass, Calif., to contribute to supply. The mine’s prior owner, Molycorp, went bankrupt after prices on rare earths plummeted in 2012. And, he points out, when Mountain Pass was operational it sent the ore to China for processing anyway. Even though the mine has new owners (it was bought by an American-led consortium that includes a Chinese rare-earth miner as a minority, non-voting partner), it will take years to ramp up mining production there.
Morgan is taking a wait-and-see approach on rare-earth metals, and says investors need to be cautious regarding this subsector of commodities. “This is not like speculating in precious metals,” he says.