With lithium prices declining ~11% in the first half of 2019, let’s take a closer look at ETFS ACDC/ETF (ASX: ACDC) as a way to get exposure to the popular global thematic of electronic vehicles and battery technology.
What Are ETFs?
ETFs are investment funds that are listed on a securities exchange. They can be ‘managed funds’ or ‘index funds’, or in other words, active or passive.
Generally, ETFs give investors exposure to many different shares or assets with a single purchase, offering one of the quickest and easiest methods of achieving diversification.
What Is The ACDC ETF?
The ETFS Battery Tech and Lithium ETF is a passive ETF that aims to track the performance of the Solactive Battery Value-Chain Index by holding all of the shares in the index.
The companies the ACDC ETF invests in are involved in battery technology and lithium mining, as well as other electrochemical storage options. ACDC is a global ETF, investing across Australia, the US, Europe and Asia.
Around 46% of the holdings are based in Japan and another 18% in the US. Some well-known companies include Sony Corp (TYO: 6758) and Samsung SDI Co Ltd (KRX: 006400).
The ACDC ETF only began trading in August 2018 and it hasn’t had the most impressive start. Over the last six months, the ACDC ETF is down 0.11%, and down 4.29% over the last three months.
From an income perspective, ACDC pays an annual dividend and currently has a trailing dividend yield of 2.71%.
Fees & Risks
The management fees for this ETF are 0.69% per year.
In terms of risks, ACDC’s performance over the past year suggests there are a few.
Despite lithium’s potential in the battery technology space, it seems to be underperforming from an investor’s point of view.
Firstly, electric vehicles are not being adopted as quickly as some people thought. In the first six months of 2019, Australian hybrid and electric vehicle sales doubled, yet they still only make up 3% of the market. Globally, electric vehicles made up around 2.1% of new car sales in 2018.
The other issue is that as the demand for lithium has increased, so has supply. This has resulted in the lithium price declining 11.09% in the first half of 2019 despite the increasing demand.
Is It A Buy?
The lithium and battery technology sector seems to fall into an interesting category where it dramatically affects an industry but doesn’t necessarily make for a good investment.
In other words, lithium batteries provide countless exciting options for people in terms of electric vehicles and electric battery storage units, but the economics of the industry currently make it a pretty poor investment.
While this may be a trend to watch in the future, I won’t be investing today. I’d rather invest in our number one ETF pick mentioned in the free report below.
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Disclosure: At the time of writing, Max has no financial position in any of the ETFs mentioned.