LIT: Not a Pure Play On Lithium

Global X Lithium ETF (LIT) was listed for trading last Friday (7/23/10).  The new ETF tracks the Solactive Global Lithium Index, which is designed to reflect performance of the largest and most liquid lithium battery producing and mining and refining companies in the world.  It is not a pure play on lithium, but it’s probably as close as we will get for quite a while.

According to the press release, the basket of lithium-related equities will give investors access to the complete lithium value chain, from mining and refining through lithium battery production.  The initial allocations have 51% of the index in lithium battery manufacturers, while 49% consists of lithium mining and refining companies.  There are no industry allocations targeted toward pharmaceuticals based on lithium.

The  LIT summary page indicates an expense ratio of 0.75% and the fact sheet (pdf) pegs the number of holdings at 20.  The five largest are Sociedad Quimica Minera ADR (SQM) 20.2%, FMC Corp (FMC) 16.7%, Rockwood Holdings (ROC) 7.9%, Advanced Battery Technologies (ABAT) 4.9%, and Ener1 (HEV) 4.7%.  Lithium production appears to be a small portion of the operations of the largest holdings, which are primarily fertilizer and chemical firms.  However, they are the largest players in the segment, making their inclusion appropriate.

The top five country allocations are US 49%, Chile 20%, Japan 10%, Canada 6%, France 5%.  Lithium, the lightest metal, is used extensively in batteries and is referred to as a “green” commodity due to its ties to renewable energy.  As such, there was a large amount of chatter leading up to the launch date.  Carolyn Cui’s Wall Street Journal article (New ETF Charges Up a Niche) of July 18 further fueled the anticipated arrival of this new ETF.

Initial trading activity has been quite heavy for a new product.  Let’s just hope that investors understand what they are buying and won’t be disappointed to learn that the fund will not track the price of lithium.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.