If you’re chasing ‘megatrends’ to add growth to your portfolio, you might have considered the ETFS Battery Tech and Lithium ETF (ASX: ACDC). Here’s a closer look at the ETF and the trends behind it.
About ETFs
Exchange-traded funds, or ETFs, are investment funds that are listed on a securities exchange and provide exposure to a range of shares or assets with a single purchase. The video below explains ETFs in more detail.
Why Lithium And Batteries?
Lithium has been talked about for some time now as one of the next big trends. It is a core component in manufacturing batteries found in personal electronics and electric vehicles.
The assumption has been that as electric vehicle sales and production increases, so too will the value of lithium companies. Lithium is being increasingly used due to its lightweight and high-energy-density.
About 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 that the ETF invests in are involved in battery technology and lithium mining, and they also cover other electrochemical storage options. It 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 familiar companies include Sony Corp (TYO: 6758) and Samsung SDI Co Ltd (KRX: 006400).
The ETF only began trading in August last year, and it hasn’t had the most impressive start. Over the last six months, the ACDC ETF is down 0.11%, and its down 4.29% over the last three months.
ACDC does pay an annual dividend and currently has a trailing yield of 2.71%.
Fees And Risks
The management costs for this ETF are 0.69% per year.
In terms of the risks, its performance suggests there are a few.
Despite lithium’s potential in the battery technology space, it seems to be underperforming from the investor’s point of view.
First of all, 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, but 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.
Summary
The lithium and battery technology sector may just 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 makes 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 does not own shares in any of the companies mentioned.
