9 ETFs to invest in this US$50 trillion investment theme

The “picks and shovels” plays within the EV investment theme have received wide media coverage within the financial press, including here at Livewire. In the final part of our latest series of articles on the topic, we shift the focus away from individual companies digging up, crushing, evaporating – or using other means – to produce metals and minerals downstream the supply chain.

One of the most direct ways to invest in this theme is via electric vehicle manufacturers, both pure-play and those legacy auto companies that are now also building EVs (which is most of them). But given the last Australian-made car (a Holden Commodore) rolled off the production line in 2017, you’ll have to broaden your investment horizon outside the local market. And because exchange-traded funds are among the most cost-effective way to invest internationally, I’ve asked insiders from a few ETF providers for their views on how to invest in the downstream portion of the EV theme.

The following article features insights from:

• Tom Wickenden, investment strategist, Betashares,
• Blair Hannon, head of investment strategy, Global X ETFs, and
• Alice Shen, senior associate - investments & capital markets, VanEck Investments.

Why invest in EV manufacturers instead of resource companies?

There appear to be multiple advantages to this approach, and they extend well beyond the environmental considerations some investors apply in eschewing direct investments in mining companies.

Betashares’ Tom Wickenden suggests investors can harness a greater degree of certainty by also focusing on downstream demand alongside the underlying resources – which are exposed to commodity price volatility.

"The transition to a net zero emissions future does not come without risk for resources companies. We’re already seeing large, diversified miners seeking to add exposure to the minerals of the future like copper, nickel and other metals that will power the transition to a net zero future."

"To break it down, electric vehicles are ultimately the end product that consumers are buying. As more people get behind the wheel of an EV, this will drive demand across the supply chain, including for resource companies with exposure to the minerals and metals that will power the transition towards a net zero future," Wickenden says.

Global X ETF’s Blair Hannon holds a similar view, noting that playing just one angle of the EV movement – such as resources – means investors can miss large parts of the broader opportunity.

Moving further down the supply chain from the extraction and processing of raw materials, he refers to battery manufacturing as the second link. Just as China still dominates the refining of battery minerals, it is also the major manufacturer of EV batteries. “But there are other players, especially South Korea and Japan,” Hannon says.

“There have been developments around improving range, moving to solid-state batteries to speed up charging time and utilising other materials like sodium-ion batteries. There is also cost improvements happening in this space driven by competition and strong EV demand.”

“Lastly there are the pure EV players such as Tesla (NASDAQ: TSLA), BYD (SHE: 002594), Rivian (NASDAQ: RIVN) and Lucid (NYSE: LCID), but don’t count out the OEMs (original equipment manufacturers) who are all heavily focused on electrifying their fleet due to public demand and government regulations,” he says.

Mercedes Benz (ETR: MBG), Ford (NASDAQ: F), General Motors (NYSE: GM), and BMW (ETR: BMW) are among the large internal combustion engine-vehicle manufacturers that are also heavily investing in EV batteries, EV manufacturing processes and charging infrastructure.

What returns can investors expect from ETFs exposed to the EV theme?

The answer to this question varies depending on how broadly you define the theme. Looking at ETFs with a specific EV theme, VanEck’s Alice Shen says the three-year annualised return figure is 14.94%, 17.1% in calendar 2023 so far, and -2.57% over 12 months.

“Naturally the returns of these products can differ due to different index methodology and country allocation,” Shen says.

Shen also alludes to the dominance of China within the EV value chain, emphasising the role ETFs can play in helping to diversify across different parts of the theme. This includes exposures such as semiconductors, EV batteries and charging infrastructure – and also different countries.

“We believe it makes sense to gain exposure to the rise of EV-related companies as part of a broader portfolio, giving you more diversification and reducing concentration risk,” she says.

On the question of potential returns, Betashares’ Wickenden uses Solactive’s Future Mobility Index as a proxy. Annualised over three years, the index has returned 14%. And year to date it has returned 9%.

He also compares these levels of investment return with those delivered by some of the direct shares in the space, such as Chinese EV company Xpeng or the “much-hyped IPO” of American EV manufacturer Rivian.

Over the past year, Xpeng’s share price has fallen almost 75%. And while Rivian’s shares opened at US$78 when it listed in 2021 and climbed as high as US$172, they’re now trading at US$19.

"By using a diversified ETF that allows for the winners to grow in the portfolio over time, an investor can avoid making concentrated bets on individual companies while also benefitting from the emergence of industry winners," says Wickenden.

9 ASX-listed ETFs to consider

The scale of the sector varies depending on how you define it. But there are between 30 and 40 ETFs global ETFs that focus on the EV theme, based on estimates mentioned by Betashares’ Wickenden and VanEck’s Shen. Collectively, they hold around US$6.5 billion in assets.

The following products are among those offered by each of the three ETF providers who have commented above.

Global X Lithium and Battery Tech ETF (ASX: ACDC)

Launched: 21 November 2022

Management costs: 0.65% per annum

Hannon names this as an example of an ETF providing exposure across the whole supply chain, contrasting it with global lithium mining ETFs – none of which are available in Australia currently.

“A lithium-only ETF would have seen year-on-year losses into the financial year as lithium prices sold of heavily at the back end of 2022,” he says.

“In comparison, ACDC has outperformed, with returns since July 2022 by more than 37%.

ETF

Global X ETFs Australia Battery Tech and Lithium ETF

Global Shares

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Global X Green Metal Miners ETF (ASX: GMTL)

Launched: 24 October 2022

Management costs: 0.69%

“This encapsulates the broad decarbonisation theme by investing in those critical metals such as lithium, copper, nickel, zinc, and other critical minerals in one ETF. It's a broad resource play focusing on those transition materials,” Hannon says.

Global X Copper Miners ETF (ASX: WIRE)

Launched: 21 November 2022

Management costs: 0.65%

“This one is more specific around targeted copper miners, again vital in the electrification of infrastructure, such as solar and wind, and vehicles. Copper being the best, at cost, conductor available sees high demand expectations in the long term,” Hannon says.

ETF

Global X Copper Miners ETF AUD Inc

Global Shares

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VanEck China A50 ETF (ASX: CETF)

Launched: 26 June 2015

Management costs: 0.6%

“We believe investors looking for exposure to this theme are best placed accessing it via a diversified portfolio,” Shen says.

CETF gives investors access to the 50 largest companies in the mainland Chinese market, with 6.7% exposure to EV batteries manufacturing (Contemporary Amperex) and 3.7% in EV manufacturers (Great Wall Motor and BYD).

ETF

VanEck FTSE China A50 ETF

Global Shares

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VanEck International Sustainability ETF (ASX: ESGI)

Launched: 6 March 2018

Management costs: 0.55%

Shen highlights this ETF’s 9.6% exposure to the semiconductor industry, with specific company holdings including chipmakers Nvidia and ASML.

ETF

VanEck MSCI International Sustainable Equity ETF

Global Shares

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VanEck International Quality ETF (ASX: QUAL)

Launched: 29 October 2014

Management costs: 0.4%

“QUAL gives investors access to 300 of the highest quality international companies, currently providing 14% exposure to the semiconductor industry,” says Shen, specific companies including Nvidia, ASML, and Broadcom.

ETF

VanEck MSCI International Quality ETF

Global Shares

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Betashares Electric Vehicles and Future Mobility ETF (ASX: DRIV)

Launched: 13 December 2021

Management costs: 0.67%

“This provides exposure to a portfolio of global companies at the forefront of innovation in automotive technology, accessing the growth potential of the electric vehicles and automotive technology thematic,” says Wickenden.

Index holdings include companies that produce EVs and EV/smart auto components, as well as companies involved in charging infrastructure, innovative driving technology and shared mobility.

ETF

BetaShares Electric Vehicles and Future Mobility ETF

Global Shares

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Betashares Energy Transition Metals ETF (ASX: XMET)

Launched: 26 October 2022

Management costs: 0.69%

“This has the advantage of providing diversified exposure across several critical minerals from a portfolio of Australian and global companies,” says Wickenden.

Companies in the portfolio include producers of copper, lithium, nickel, cobalt, graphite, manganese, silver, and rare earth elements – a diversified group that seeks to eliminate the risks associated with holding individual critical resource companies.

ETF

BetaShares Energy Transition Metals ETF

Global Shares

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Betashares Climate Change Innovation ETF (ASX: ERTH)

Launched: 9 March 2021

Management costs: 0.55%

Wickenden describes this product as one suited to investors seeking broader exposure to the decarbonisation theme.

“While the electrification of vehicles is one important element to a net-zero future, transport accounts for less than 10% of greenhouse gas emissions by sector,” he says.

“ERTH includes companies in the electric vehicle industry alongside other industries that are key to decarbonisation, such as waste management, sustainable products, and improved energy efficiency and storage.”

ETF

BetaShares Climate Change Innovation ETF

Global Shares

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