Investing in rare earth metals
About rare earth metals
- Crucial for manufacturing high-tech devices
- The supply is controlled mainly by China
- Provides exposure to the green transition
- Diversifies an investment portfolio.
The rare earth metals (REMs) include 17 metallic elements. The metals have unusual fluorescent, conductive, and magnetic properties – which make them very useful when alloyed, or mixed, in small quantities with more common metals such as iron. Many rare earth metals have a high demand due to their use in green technologies such as electric vehicle batteries and wind turbines. The rare earth metals are:
- Scandium (Sc) - 21
- Yttrium (Y) - 39
- Lanthanum (La) - 57
- Cerium (Ce) - 58
- Praseodymium (Pr) - 59
- Neodymium (Nd) - 60
- Promethium (Pm) - 61
- Samarium (Sm) - 62
- Europium (Eu) - 63
- Gadolinium (Gd) - 64
- Terbium (Tb) - 65
- Dysprosium (Dy) - 66
- Holmium (Ho) - 67
- Erbium (Er) - 68
- Thulium (Tm) - 69
- Ytterbium (Yb) - 70
- Lutetium (Lu) - 71
Investing in rare earth metals as a part of your portfolio
Investing in rare earth metals and other raw materials required to create a green future can be an effective strategy to diversify a portfolio primarily composed of traditional assets like stocks and bonds. Investing in rare earth metals also provides some protection against monetary inflation.
Rare earth metals have become more relevant and discussed as it's increasingly understood that we cannot accomplish the green transition without them. The creation of products like batteries, solar cells, wind turbines, and electric cars is enabled by most rare earth metals. Many of these products are essential for achieving global climate goals.
By owning the commodity directly, or investing in the companies that extract it, investors can get pure exposure to a potential price increase in the commodity. Investing in rare earth metals can also complement investing in other types of metals and materials.
Diversify risk with rare earth metals funds – invest in mining companies
Investing in mining companies extracting rare earth metals can be a way to diversify risk. By investing in companies or funds related to REMs, investors can gain exposure to the green transition and modern technology sector. Several mining companies and funds provide opportunities for investment in the REM sector. For instance, investors can purchase shares of mining companies or buy exchange-traded funds (ETFs) that hold a diversified basket of these mining companies.
Furthermore, diversifying investments across geographic locations can help mitigate the risks associated with geopolitical tensions and supply chain disruptions. Companies and countries outside China, like the US and Australia, are working towards developing their rare earth production capacities to diversify the global supply chain and reduce dependency on China.
How can you invest in rare earth metals?
There are different ways to invest in rare earth metals and rare earth metals funds. In this section, we'll focus on different types of funds that give exposure to these metals:
- Daily Traded Funds: Daily traded rare earth metals funds typically offer rare earths as part of a larger portfolio of mining stocks. These can be traded through conventional fund platforms.
- Exchange-Traded Funds: There are also ETFs offering rare earth exposure. ETFs or exchange-traded funds are traded much like a regular stock, offering intraday pricing and dealing.
- Mining stocks: Investing directly in mining companies that explore, extract and process rare earth metals also gives exposure to the rare earth industry. By purchasing shares of these companies, investors benefit from the growth and profitability of the mining operations
Why invest in rare earth metals with AuAg Funds?
AuAg Funds has been a reputable player since 2019, with our investment focus honed on two mega trends: "the green transition" and "monetary inflation". We firmly believe that metals and elements are the linchpin in transitioning towards a sustainable world, and we aspire to be a part of this pivotal change. Consequently, we channel our investments into rare earth metals mining companies boasting a robust portfolio of mines – mines characterised by high extraction rates of rare earth metals and exemplary sustainability practices.
Secure the resource
In the face of geopolitical tensions and a rising wave of deglobalization, the importance of investing in rare earth metals to ensure a steady supply of indispensable raw materials is gaining recognition. Through our fund, AuAg Essential Metals, you have the opportunity to invest in some of the most important mining companies situated in the most stable jurisdictions.
Create greater net effect
Rare earth metals are the bedrock of the green transformation, albeit the mining industry is a significant emitter of greenhouse gases. By channelling investments towards rare earth metals mining companies that are pioneers in sustainability, sidelining the laggards, and incentivizing those on the path towards greener operations, we aim to amplify the net positive impact on the planet. Our selection is meticulously done, opting for mining companies that score high on the ESG risk rating, ensuring the mines operate sustainably.
Funds investing in metals for the green transition
AuAg Essential Metals
We facilitate the allocation of your portfolio towards rare earth metals through the AuAg Essential Metals fund. This commodity fund is centred on the metals pivotal for a high-tech and eco-conscious future. AuAg Essential Metals offers a window into a diversified metals portfolio, encompassing both industrial and new-tech metals, with 25 equally weighted holdings ensuring a balanced exposure.
AuAg Precious Green
AuAg Precious Green facilitates exposure to rare earth metals and the green transformation through stocks in companies engaged in the creation of green tech products, utilising rare earth metals for manufacturing items like solar cells, batteries, and wind turbines. The fund also encompasses companies extracting other essential metals for the green transition, such as copper and lithium, and maintains a backing of precious metals, predominantly gold, achieved through ETCs.
Benefits and risks of investing in rare earth metals funds
There are both benefits and risks involved when investing in rare earth metals. At the moment, investors can't buy futures for rare-earth elements as they can with other commodities such as gold, copper, wheat or corn. It can also be difficult to know what to look for when selecting a specific mining company to invest in. Therefore, investors can seek exposure to the rare-earth industry using more conventional means, such as investing via rare earth metals funds or ETFs.
A couple of benefits of investing in rare earth metals funds are:
- Broad exposure: They typically give broad exposure to a range of companies extracting rare earths as a subset of their total mining activities. They could include platinum mining companies and other miners primarily focusing on gold and silver.
- Managed portfolio: An expert (portfolio manager) keeps track of the holdings in the fund to make sure that investors get the best exposure to rare earth metals.
- Diversification: Investing in a rare earth metals fund can be a good diversification to a portfolio that already invests in gold and silver.
There are also several risks involved in investing in rare earth metals funds:
- Price volatility: The metal prices are, like many commodities, somewhat volatile. It is important to understand the risk exposure of the fund before investing.
- Mining jurisdiction: Today, most rare earth metals are extracted by privately or locally listed companies in China. An investor needs to understand which jurisdictions the fund is investing in to understand the full risk profile of the fund.
AuAg Funds does not invest in rare earth metals mining companies based in high-risk jurisdictions, such as China, Russia and Africa, but instead focuses on jurisdictions such as Australia and North America.
FAQ – Rare Earth Metals
China is the largest producer of rare earth metals globally, where they during 2020 produced 85% of the world’s refined rare earth metals. Following China, Australia and the United States also contribute significantly to rare earth metals production. The dominance of China has encouraged other nations to explore and develop their rare earth metals resources to diversify the supply chain.