Van Eck has launched the Market Vectors Rare Earth/Strategic Metals ETF (REMX), the first U.S.-listed exchange traded fund that seeks to give investors pure play exposure to the equities of companies primarily engaged in the producing, refining, and recycling rare earth/strategic metals.
The new exchange traded fund will track the Market Vectors Rare Earth/Strategic Metals Index, a rules-based, modified-capitalization weighted, float adjusted index intended to give investors a means of tracking the overall performance of publicly traded companies primarily engaged in the producing, refining, and recycling of rare earth/strategic metals. To be included in the index, a company must have the capacity to generate more than 50 percent of its revenue from rare earth/strategic metals-focused efforts.
As of October 13, 2010, the Index included 24 constituents from eight different countries. Australia had the largest country weighting, at 23.9 percent, followed by Canada, at 19.81 percent, and the United States and China, with 18.77 percent and 14.84 percent, respectively. While China controls the vast majority of all rare earths production, the Index is limited to equities that are currently available to foreign investors; therefore only offshore China equities, or H-Shares, are included in the investable universe.
REMX will carry a net expense ratio of 0.57%.
Rare earth/strategic metals are industrial metals that are typically mined as by-products in operations focused on precious metals and base metals. Compared to base metals, they have more specialized uses and are often more difficult to extract. Currently, approximately 49 elements in the periodic table are considered rare earth/strategic metals. They include such elements as cerium, manganese, titanium and tungsten. Strategic metals are used in a variety of technologies including jet engines, hybrid cars, steel alloys, wind turbines, flat screen televisions and cellular phones. Rare earth metals, a subset of strategic metals, are a collection of 17 chemical elements that are essential in many of today’s most advanced technologies, with particular applications in electronics.
Van Eck points out that investing in the rare earth/strategic metals industry is not without risks, including geopolitical and environmental concerns. Further, many of the pure play rare earth/strategic metals companies are small- to medium-sized firms and are particularly sensitive to the availability of capital. Company share prices, as well as the prices for the metals themselves, can be volatile. Shares of some small rare earth mining companies, in particular, have seen a recent surge in price as fears of China’s export cuts have driven up prices of the commodities. The potential effect that Chinese policies have on the industry is a risk that should also be considered.