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Many clients are already aware of disruptive growth technologies and the related investment cases. Likewise, many are of – perhaps even knowledgeable of – commodities.
What some clients might not be aware of is a deep, growing intersection between the commodities and disruptive growth realms. This is an investable theme and a potentially lucrative one at that for risk-tolerant clients, but it's best deployed in satellite form and with some education, too.
For example, when most clients think of commodities, they think of gold, silver and oil. Perhaps a few others such as copper. Advisors know the commodities landscape is much more extensive and complex. What many market participants aren't aware of is the fact that many of the commodities, specifically metals, powering innovative technologies lack futures liquid, robust futures markets, meaning equities are the best ways of accessing these assets.
The newly minted Global X Disruptive Materials ETF (DMAT) is an efficient, equity-based avenue for accessing rare earth metals (rare earths). Those include Zinc, Palladium & Platinum, Nickel, Manganese, Lithium, Graphene & Graphite, Copper, Cobalt, Carbon Fiber & Carbon Materials.
Case for Rare Earths Growing, Not Fading
Rare earths actually aren't all that rare – certainly not when compared to say gold, palladium and platinum – and these resources have been around since, well, the dawn of time. However, rare earths as an investable asset class is just over a decade old.
The notion of investing in rare earths producers was bolstered in large part by the advent of smartphones and tablets because those devices are rare earths-intensive. These days, assets like DMAT could have even more credibility because an array of next-generation technologies are dependent on rae earths.
“The world is rapidly embracing digital and clean technologies like electric vehicles (EV), hydrogen fuel cells, wind turbines, robotics’ traction motors, and solar photovoltaic (PV) panels, just to name a few,” says Pedro Palandrani of Global X. “These technologies can help slow climate change, improve productivity, or connect millions of people around the world. But behind these complex technologies are many essential inputs like metals, minerals, and materials. Without them, these technologies would not exist—at least in their current forms.”
One of the reasons DMAT and related assets are potentially attractive for clients with long-term time horizons is renewable energy/clean technology demand. Put simply, disruptive metals are key ingredients in solar panels, wind turbines, energy storage products and, of course, lithium-ion batteries.
Consider the long-term demand outlook for disruptive metals set forth by the International Energy Agency's (IEA) Sustainable Development Scenario (SDS), which assumes developed economies reach net-zero goals in 2050 with other economies following and getting there by 2070.
“In this scenario, total demand for disruptive materials rises by 300% over the next two decades,” adds Palandrani. “Demand for lithium, the foundational component of lithium-ion batteries, increases by almost 90%. Demand for copper and rare earth materials increases by over 40% and 60-70% for nickel and cobalt.”
Still in Early Innings
The disruptive metals investment thesis, much like the technologies these commodities underpin, is still in its formative stages and it has multiple tailwinds, including the difficulty, costs and time it takes to bring new supply to market. Coupled with ongoing demand, that can put a floor under prices.
Additionally, while writing obituaries for the traditional fossil fuels sector always proves premature, the reality is corporations and governments are pushing to fight climate change and putting trillions of dollars behind those efforts.
“As companies move further into disruptive materials, we expect revenue profiles to shift significantly. According to one estimate, revenue from disruptive materials revenue could increase five-fold by 2040, reaching over $250 billion, while fossil fuel revenues could decline by 59%,” concludes Palandrani.
The clean energy vs. fossil fuels debate will rage on, but there's no debating the spending to support the former and that could be a long-term catalyst for disruptive metals.