Why Rare Earths are Becoming a New Defense Priority

In an increasingly tense world, defense spending is now shifting from a routine line item into a critical national priority.Key Takeaways: Defense spending is on the rise across the globe, and ongoing geopolitical tensions may help keep spending up. Rare earths are a crucial part of the growing defense industry due to their variety of manufacturing applications. The Sprott Rare Earths Ex-China ETF (REXC) can help advisors and investors access the opportunities within rare earths while harnessing additional momentum from countries decoupling from China. Of course, defense spending comes in multiple forms. For instance, militaries around the globe rely on stockpiling rare earths to manufacture different aspects of the defense sector. This includes manufacturing applications for missile guidance systems, radars, drones, sonar, and much more. Recent insights from the team at Sprott Asset Management took a look at the dynamic between rare earths and defense spending. In the article, Justin Tolman, senior portfolio manager and economic geologist at Sprott Asset Management, examined how the defense sector is affecting supply-and-demand for the rare earths industry. To start, Tolman pointed out that defense spending across the globe is on the rise. As he noted, world defense spending sits above $2.7 trillion on an annual basis. As defense budgets rise and militaries look to expand their hardware, demand for rare earths could grow as well. Just take a look at the United States. Tolman explained that the U.S. Department of Defense currently requires around 3,000-4,000 tonnes of specialized rare earth magnets on an annual basis. The Department expects that demand to grow to about 10,000 tonnes by 2030, according to Tolman. See More: A Portfolio Power Play: The Case for Critical Materials ETFsThe Ex-China Opportunity SetThe question is: can supply keep up with demand? As Tolman noted, China has a dominant position in the rare earth supply chain, responsible for production of 94% of global rare earth magnet production. Only about 20,000-25,000 tonnes of rare earth magnet production happens outside of China, according to Tolman. While China’s rare earth position is certainly significant, ex-China rare earth companies may be positioned to benefit in the long-term. A stronger defense sector requires more resilient supply chains, and countries may feel incentivized in decoupling from China’s rare earth industry by investing in ex-China sources. Advisors and investors seeking targeted exposure to ex-China rare earths may want to consider the Sprott Rare Earths Ex-China ETF (REXC). REXC provides distinct portfolio allocation to rare earth companies outside of China. This specific approach to rare earths investing may help the fund access potent geopolitical tailwinds for growth. As countries continue to expand their defense sectors and decouple from China, REXC’s compelling portfolio could help its investment base tap into growth over the long term.For more news, information, and analysis, visit the Gold/Silver/Critical Minerals Content Hub. An investor should consider the investment objectives, risks, charges, and expenses carefully before investing. To obtain a Prospectus, which contains this and other information, contact your financial professional or call 888.622.1813. Read the Prospectus carefully before investing, which can also be found by clicking one of the links below. Past performance is no guarantee of future results. One cannot invest directly in an index. A bull market is one in prices are rising and investor sentiment is generally positive. Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of investment losses. ETFs are considered to have continuous liquidity because they allow an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fund’s performance. Sprott Asset Management USA, Inc. is the Investment Adviser to the ETFs. ALPS Distributors, Inc. is the Distributor for the ETFs and is a registered broker-dealer and FINRA Member. ALPS Distributors, Inc. is not affiliated with Sprott Asset Management USA, Inc. or VettaFi. Exchange Traded Funds (ETFs): SETM, LITP, URNM, URNJ, COPP, COPJ, NIKL, SGDM, SGDJ, SLVR, GBUG, METL and REXC Physical Bullion Funds: PHYS, PSLV, CEF, and SPPP. Gold and precious metals are referred to with terms of art like store of value, safe haven and safe asset. These terms should not be construed to guarantee any form of investment safety. While “safe” assets like gold, Treasuries, money market funds and cash generally do not carry a high risk of loss relative to other asset classes, any asset may lose value, which may involve the complete loss of invested principal.