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Investing in Rare Earth Metals

Investing in rare earth metals funds

Rare earth metals funds invest in companies that extract so-called rare earth metals. Investing in rare earth metals exposes the investor to the green transformation as these metals are essential in many green-tech applications.

The rare earths are 17 metallic elements located in the middle of the periodic table. These 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. Because they are used in wind turbines and electric vehicles, these elements are also critical to the world's green transformation.

Many rare earth metals have a high demand due to their use in green technologies such as electric vehicle batteries and wind turbines. Some of these are vanadium, manganese, rhodium, neodymium and dysprosium.

Benefits of investing in rare earth metals funds

There are both benefits and risks involved when investing in rare earth metals. These are described further below.

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.

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