Thematic deep-dive: ETFS Battery Tech and Lithium ETF (ASX:ACDC)

The ETF Securities Battery Tech & Lithium ETF (ASX: ACDC) provides investors with exposure to battery storage and lithium. Holdings are involved in the full supply chain, from the start of exploration and mining all the way through to the production of technologies.

Demand for energy storage has rapidly increased as corporations and governments reduce emissions and shift to renewable energies.

Notable stock holdings include Tesla Inc (NASDAQ: TSLA), Mineral Resources Limited (ASX: MIN) and Mercedez Benz owner Daimler AG (ETR: DAI).

ETF composition

The underlying index, Solactive Battery Value-Chain Index, utilises the Clean Horizon’s Energy Storage Source (CHESS) database to search for providers of Electrochemical (battery) projects with a minimum capacity of 1MWh. Additionally, the index includes mining producers that are producing Lithium. All companies have a market capitalisation greater than US$200 million.

The ETF currently has 31 holdings, which are equally weighted and rebalanced twice a year.

It’s a one-stop option for investors looking for exposure to battery technology and its associated supply chain.

ACDC is well diversified across geographies with allocations to Japan (27.0%), United States (18.2%), Australia (17.4%), South Korea (9.2%) and Germany (6.5%).

Past performance

Since its inception in August 2018, the ETF has returned 28% per annum.

Source: ETF Securities ACDC Factsheet

The underlying index has a one-year return of 96.1% and a five-year return of 28.9% per annum.

Fees and risks

Despite reducing the fee by 13 basis points in February, ACDC still has a relatively high management fee of 0.69%.

Battery storage adoption is still in its infancy, therefore some of the holdings are loss-making. Moreover, the mining industry can be quite cyclical. Depending on the price of commodities such as Lithium, the business’s profitability will fluctuate. As a result, the ETF has a negative P/E ratio.

Furthermore, ACDC is currency unhedged, meaning movements in exchange rates will affect performance. Given the geographic diversification of the ETF, this risk is amplified.

My take

ACDC could form part of the tactical allocation within your portfolio. I consider it to be high risk, given some companies remain unprofitable.

I think the management fee is a little high for a passive product. I prefer the BetaShares Global Sustainability Leaders ETF (ASX: ETHI) for exposure to climate leaders. You can check out the reasons I like ETHI here.

For more information on ACDC, check out our free ETF report here.

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Long-term growth potential? Check.

Regular cash returns? Check!

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At the time of publishing, Lachlan owns units in ETHI.

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