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Thematic exchange-traded funds (ETFs) take advantage of long-term market trends, and the portfolios for these funds are often involved in industry-shaping innovations. At the start of 2023, thematic ETFs totaled $84.6 billion in assets under management (AUM).
An example of a company leading the charge in clean energy market-focused ETFs is Sprott Asset Management, a subsidiary of Sprott Inc. (TSX: SII) and a global asset manager with differentiated and real asset portfolios. Sprott Asset Management has a first-mover advantage, with the only ETF to offer pure-play exposure to a wide variety of critical minerals and mining equities.
Critical minerals are the natural materials required for the generation, transmission and storage of clean energy. As low carbon and clean energy infrastructure is adopted across the globe, the need for critical minerals, such as lithium, nickel, cobalt, manganese and graphite, is increasing rapidly.
By 2040, one model predicts that demand for copper and rare earth elements will increase by 40%, while nickel and cobalt demand will increase by 70%, and lithium by almost 90%. A record-breaking $1.1 trillion was invested globally into low carbon energy transition in 2022, in part to meet the demand for critical minerals. However, it is estimated that the average needs to be about quadruple what is being spent now to meet net-zero targets.
Sprott’s Pure-Play Thematic ETFs
Sprott Inc. was founded in 1981 and has spent decades establishing itself as a global investment leader in precious metals and energy transition minerals. It has primarily been involved in upstream mineral companies, such as mining and development companies.
Sprott Asset Management has been able to leverage its parent company’s network of industry relationships. Its Energy Transition Materials ETF (NASDAQ: SETM) is unique because it provides pure-play access to companies at the heart of the clean energy transition. Each security undergoes a process of rigorous selection so that every company in the portfolio is hand-picked from a wide range of possible assets.
As part of the index construction process, the company looks at the 90,000+ companies with global primary security equities. It then applies a series of screening criteria, using competitive analysis and in-house research, to select the top companies for investment. It also conducts periodical rebalancing based on its weight criteria.
Because of Sprott’s extensive background in the mining industry, the Energy Transition Materials ETF can target companies upstream in the mining and material acquisition process. These companies are more likely than downstream companies to be recipients of the increased global funding in the clean energy transition, according to the company.
Sprott Asset Management offers a range of other ETFs in the critical minerals sector. These include its Lithium Miners ETF (NASDAQ: LITP), Junior Copper Miners ETF (NASDAQ: COPJ), Uranium Miners ETF (NYSE Arca: URNM), and Junior Uranium Miners ETF (NASDAQ: URNJ), and its Nickel Miners ETF (NASDAQ: NIKL).
Read more about Sprott’s thematic ETFs on its website.
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