Lithium ETFs: Charging Ahead

This summer has brought a renewed focus on alternative assets. Investors are rotating into gold, other precious metals, bitcoin, and option-based strategies. While lithium remains a lesser-known commodity compared to gold or silver, it has reentered the spotlight following a recent rebound in prices.As a critical input in lithium-ion batteries, the metal plays an important role in long-term electric vehicle and disruptive technology trends. And although lithium may not always dominate headlines, there are several ETF options offering targeted exposure. For investors and advisors navigating the space, it is essential to understand lithium mining, demand drivers, and the existing ETF peer group.What is lithium and why does it matter?Lithium is a metal best known for its role in energy storage, particularly in lithium-ion batteries used across electric vehicles, mobile devices, and renewable energy systems. It is typically extracted through two main methods: hard rock mining and brine extraction. This process differs significantly from gold mining, which generally involves the excavation and processing of ore through crushing, milling, and chemical separation techniques. Gold is often found alongside other precious and industrial metals like silver and copper. Lithium extraction is a more targeted and isolated process. As a result, lithium mining can offer added diversification within a commodities allocation, particularly for investors looking to differentiate their exposure to miners tied to the energy transition rather than traditional metals markets. As with many commodities and commodity miners, the lithium story hinges on a supply-and-demand story. In recent years, supply growth outpaced demand. This is due to aggressive capacity expansions by producers betting on continued electric vehicle adoption. At the same time, EV growth decelerated. That created a mismatch that caused prices to decline significantly from their 2022 highs.Looking forward, however, there seems to be some bright spots. Recently, mines have shut down that have contributed to the pricing increase. Longer-term forecasts seem to imply demand will stay persistent (although maybe at a slower rate than we imagined several years ago). According to Abemarle’s most recent earnings call, it anticipates global lithium demand growth in the 15%-40% in 2025. Longer term, the company believes it will more than double from 2024 to 2030. Albemarle (ALB) is a U.S.-based chemical company and is one of the world’s largest lithium producers with diversified operations across Chile, Australia, and the U.S. Short-term demand remains slightly below earlier expectations. But long-term structural trends (especially in battery storage and renewable infrastructure) remain intact.Lithium ETFsLithium ETFs vary significantly in their strategies and holdings. Here’s a breakdown of some of the key options: The Global X Lithium & Battery Tech ETF (LIT B-) is the oldest and largest lithium ETF, with over $1 billion in assets. LIT invests in the full lithium cycle including mining, refinement, and battery production. However, a larger focus seems to be on mining. Mining companies are capped at 20% weight versus battery companies, which are capped at 4% weight. As a results, its top three holdings are currently Albemarle, Sociedad Quimica y Minera de Chile (SQM), and Tianqi Lithium Corp (002466 CH), which have a combined weight of 19.4%. The ETF also holds names in the lithium supply chain like Tesla (TSLA), Samsung (006400 KS), and Panasonic (6752 JP). LIT is the largest lithium ETF. It is also worth noting it has the highest expense ratio (75 basis points) and has underperformed slightly YTD from the rest of its peer group. The Amplify Lithium & Battery Technology ETF (BATT ) is the second-largest of the group (but smaller than LIT by a wide margin). Although it only has around $68 million in assets, it is more diversified by GICS subindustry classifications. This ETF tracks an index that focuses on companies deriving more than 50% of their revenue from development and production of lithium battery technology or its mining processes (or alternatively, top market share in any lithium battery metal). It also includes companies that derive over 90% of their revenue from electric vehicles. Its weightings are less top heavy due to its weight cap of 7%. BATT also has more exposure to diversified metals and copper. The Sprott Lithium Miners ETF (LITP B-) considers itself the only pure-play U.S.-listed ETF focused on lithium mining companies (based on Morningstar data). This aligns with its GICS subindustry data, which is the simplest breakdown of its peers. LITP holdings are about two-thirds in diversified metals and mining and one-third specialty and commodity chemicals with no exposure to automobile manufacturers. This ETF also notably has the least exposure to China out of its peers. Sprott is a leader in commodity mining ETFs. The company offers 11 mining ETFs in both critical materials and precious metals spaces including gold, silver, copper, lithium, nickel, and uranium. The iShares Lithium Miners and Producers ETF (ILIT B-) takes a more pure-play approach. It focuses specifically on global lithium miners and producers, rather than the broader battery supply chain. This means that unlike peers like LIT or BATT, ILIT does not contain electric vehicle manufacturers or electronics companies. The Themes Lithium & Battery Metal Miners ETF (LIMI) is the newest ETF in the group. It is a low-cost option with an expense ratio of only 35 basis points. That is significantly lower than its peers. LIMI tracks an index that uses “Revenue-based Thematic Exposure Scores” to determine exposure. There are also diversified battery metal ETFs like the ProShares S&P Global Core Battery Metals ETF (ION C+) and the USCF Sustainable Battery Metals Strategy Fund (ZSB B-). These are both small funds, with $2.5 million and $1.5 million in assets, respectively. ION targets exposure to the broader battery technology theme. That includes companies focusing on minerals like nickel and cobalt in addition to lithium. Notably, ION has a YTD return of 33.3%. That’s much higher than pure lithium ETFs. ZSB similarly focus on diversified battery metals, but also includes derivatives in addition to equities. It also employs a sustainable strategy. It purchases carbon offset investments in an amount equal to the estimated carbon emissions of the fund’s holdings. Bottom Line: While lithium is not the most popular commodity, it offers diversification relative to other traditional metals. With a growing number of ETFs targeting every segment of this metal’s supply chain — from upstream miners to integrated battery producers — investors have several tools available to build exposure to this critical material. vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for BATT, for which it receives an index licensing fee. However, BATT is not issued, sponsored, endorsed, or sold by VettaFi. VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of BATT. For more news, information, and analysis, visit VettaFi | ETFDB.