Monday, July 26, 2010

A Look at the Global X Lithium ETF (LIT)

Back in mid-March a new platinum ETF was rolled out and we posted "Commodities: They Just Rang a Bell at the Top "ETF First From First Trust: Platinum, Copper Miner ETFs" (FCX; RTP; SCCO)".
Here's the chart for the platinum miners ETF (PLTM):

Chart forFirst Trust ISE Global Platinum Index (PLTM)

And the copper ETF (CU):

Chart forFirst Trust ISE Global Copper Index (CU)

The reason you get this kind of price action is that the Wall Street marketeers will only create new product when they think the can sell it to the public with minimum effort. As I rambled in the above mentioned post:

 In an April 2007 post, "Indexes, ETF's and Global Warming" I said (emphasis added):
A few weeks ago Mark Gongloff had a post at the's EnergyRoundup with the cautionary title "Alternative Energy’s “Cover” Moment?". He ended the post with this humble line "And that could be one reason why the alternative-energy boom might continue for a while after all. Or at least, there’s a 50/50 chance of it."

Of all the "Cover Moments" the most infamous is the Aug. 13, '79 BusinessWeek "The Death of Equities" with the DJIA around 875. Paul Kedrosky has a great chart at Infectious Greed.

If you note that date, it was three years before the Big Bull started, with the Dow closing at 776.92 (I think; That day was a lifetime ago) on Aug. 12, 1982. My personal favorite cover moment was the Oct. 4 1999 BusinessWeek "The Internet Age". Both of these pale before Prof Irving Fisher's timing of his Sep. 4, 1929 statement "There may be a recession in stock prices, but not anything in the nature of a crash." (the DJIA had peaked the day before at 381, it would bottom at 41 in 1932), or his more famous Oct. '29 "...permanently high plateau".

All this history came welling up (from an admitedly strange mind) because of a line--"Cleantech: The New Biotech" that Richard Kang used a few months ago in a posting to Seeking Alpha: "Tree Huggers Unite! A Survey of Cleantech ETFs".

The Amex rolled out the BTK biotech index in October 1991 and a very astute trader told me that was a top, get flat or short of the biotechs. Good call-see chart. The biowrecks fell 50+% over the next three years....
...Is it just me or did you just hear a clang, clang, clang?
We've been fans of the red stuff since March 12, 2009.
The scary thing is; You could overlay an SPX chart on copper and they are almost indistinguishable.
Here are some of our Cu posts:...
Here's the Lithium ETF, from Hard Assets Investor:
Global X, which has recently released funds targeting silver miners and copper producers, last week launched an ETF focused on lithium companies—the first of its kind.

The Global X Lithium ETF (NYSE Arca: LIT) tracks the Solactive Global Lithium Index, a benchmark made up of large, liquid companies in the lithium space. As of the fund's launch last Friday, that broke down to about 51 percent miners, 49 percent lithium-ion battery makers. That's a key point, because this means that LIT doesn't just provide access to pick-and-shovel producers, but also to the battery makers—the industry's real golden goose.

Why lithium batteries? With only three electrons and protons per atom, lithium is the lightest of all metals, giving any battery made from it a high energy-to-weight ratio. Lithium "has the capacity to store electric energy more efficiently than any other material," said Jose C. Gonzalez, COO of Global X Funds, in the launch announcement. "Efficient electric energy storage is necessary for all green energy products and the computer systems that control them—like electric cars, solar, wind and water power."
But lithium's not just a green metal. Lithium batteries power many modern devices—everything from airplanes to wristwatches. More than 90 percent of laptops are lithium-powered, as are over 60 percent of cell phones. In addition, many next-gen electric cars will depend on lithium-ion batteries, including the Chevy Volt, the Nissan Leaf and the Tesla Roadster.

That's probably why prices for lithium metal have tripled in the past 10 years, according to Credit Suisse. But so far, investors looking for pure plays in the space have remained out of luck.

Currently, lithium futures are not available for trade on any exchange, leaving investors with no choice but to peck through individual producer stocks—always a risky proposition.  That goes double for the lithium space, mostly populated either by juniors just starting out, or by diversified mega-miners for which the metal accounts for negligible portions of their overall business. A similar situation exists for lithium-ion battery makers, many of whom tend to be part of larger, diversified energy storage businesses, like Panasonic or Duracell.
Hence why the ETF is so useful: It provides access to 20 companies, all primarily in the lithium biz.
As of launch, the fund has exposure to seven countries. Its benchmark's largest exposure—49 percent—went to U.S. companies, although the Chilean miner Sociedad Quimica y Minera (NYSE: SQM) took the top weighting (20.16 percent). Other highly weighted companies include FMC Corp (16.67 percent), an agricultural and industrial chemical company; and Rockwood Holdings (7.93 percent), a producer of lithium compounds.

LIT has an annual expense ratio of 0.75 percent, making it slightly more expensive than Global X's silver or copper miner ETFs (SIL and COPX, respectively). Still, the fund saw relatively brisk trading in its first day, of more than 44,000 shares.

The Institutional Angle
Interestingly enough, Global X expects this fund to garner most of its interest not from retail investors, but institutional ones. As Global X CEO Bruno del Alma told Index Universe on Friday, "We've had a large number of inquiries about this product, even months before launch, coming from some of the largest and most sophisticated hedge funds and asset managers out there."

Del Alma added, "This will be an ETF led by heavy institutional interest and it could easily become our flagship fund this year."...
Maybe this time will be different, however I keep hearing the quote attributed to sportswriter Damon Runyon:
“The race is not alwys to the swift nor the battle to the strong—but that’s the way to bet.”