ETF Talk: Critical Materials Needed for a Winning ETF

It’s no secret that energy demand is on the rise.

In addition to the ever-present need to power homes, roadways, businesses and other infrastructure people the world over rely on, the rise of artificial intelligence (AI) has created a new energy drain that is ever-hungry for more power. And, if you remember anything from your elementary economics class, you’ll know that when demand is high, there are profits to be made by those that supply it.

With something as vital as energy, it’s good for that supply to come from a wide variety of sources. And no exchange-traded fund (ETF) knows that better than the Sprott Critical Materials ETF (SETM).

SETM supports the need for energy by tracking an index of U.S. and foreign companies related to energy transition materials. Securities are selected based on revenue and weighted by market cap.

SETM gives pure-play exposure to a portfolio of 100-120 U.S. and foreign companies that derive half of their revenue from several activities involving a broad range of critical minerals considered energy transition materials. These activities include mining, exploration, development and production of metals and raw materials such as uranium, copper, lithium, nickel, cobalt, graphite, manganese, rare earths and silver.

The investments are identified through a proprietary selection methodology that includes industry publication reviews and fundamental research. All eligible securities are included as constituents provided that minimum market-cap and liquidity requirements are met. While the index is market cap-weighted, an individual security capping of 4.75% and a 25% group commodity capping are implemented to ensure a diversified portfolio. Index reconstitution and rebalancing are done semi-annually.

Exclusive Three Defense Investments with Potential to Outperform

The fund has assets under management of around $480.70 million and an expense ratio of 0.65%. It is currently up an impressive 29.74% over the last month, 53.53% over the last three months and 35.03% year to date.

Chart courtesy of StockCharts.com.

Top holdings include Albemarle Corporation (NYSE: ALB), 4.94%; Freeport-McMoRan, Inc. (NYSE: FCX), 4.76%; Cameco Corporation (NYSE: CCJ), 4.74%; National Atomic Company Kazatomprom JSC Sponsored GDR RegS (KAP.IL), 4.59%; PLS Group Limited (PLS.AX), 4.46%; Uranium Energy Corp. (NYSE: UEC), 4.21%; First Majestic Silver Corp. (NYSE: AG), 4.20%; Lynas Rare Earths Limited (LYC.AX), 4.15%; MP Materials Corp Class A (NYSE: MP), 3.80% and Paladin Energy Ltd (PDN.AX), 2.75%.

While a diverse spread of sources is great for our energy grid, it may not be great for your portfolio. Investors should always do their due diligence before adding any stock, fund or ETF to their portfolio.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.