Lithium May Be The Next Big Trend

By Investopedia Staff | June 26, 2012 AAA

The last few years brought a handful of new and interesting exchange-traded funds (ETFs) to the market, but one of the most interesting was the Global X Lithium ETF (NYSE:LIT). Because the ETF is the first to concentrate on the niche commodity, it gives investors a way to play the increasing demand for lithium. Lithium is not your typical fuel source, such as oil and coal, but it can be used to generate power in lithium-ion batteries that fuel everything from a cell phone to an automobile. Lithium is a highly reactive metal that currently is not traded on any commodity exchanges and therefore the new ETF is one of the only ways for investors to profit from higher lithium prices and demand.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Lithium ETF
Due to the small number of lithium stock plays available, the ETF is heavily weighted in a few big names. The top three holdings make up over 50% of the fund. Half of the ETF is invested in mining and the other half in battery-related companies. The top holding is FMC Corp (NYSE:FMC) with 19.53% allocation, followed by Chemical & Mining Company of Chile (NYSE:SQM) at 18.94%, and Rockwood Holdings (NYSE:ROC) at 9.48%.

SEE: Asset Allocation: The First Step Towards Profit

Lithium Stocks
Chemical & Mining Company of Chile is the largest lithium producer in the world, and is based close to Bolivia, which is the "Saudi Arabia of lithium." Even though SQM produces a large amount of lithium, the stock is not a pure play on the sector because the company has exposure to other areas in the chemical industry, such as fertilizers and iodine. The stock has struggled this year with the entire agricultural chemical sector, but a boost in the sector and the lithium story have the stock moving once again.

SEE: Clean Or Green Technology Investing

The Bottom Line
Keep in mind that lithium is a commodity, but at the same time it offers a clean alternative to fossil fuels in the future. Think Chevy Volt or the Tesla electronic car that uses thousands of small lithium-ion batteries, and do not forget about the millions of handheld devices that use lithium-ion batteries. This is a story that is quickly gaining momentum and could be one of the mega-trends of the next decade.

Related Analysis
  1. Chart Advisor

    A Total Stock Market ETF For Any Portfolio

  2. Chart Advisor

    Traders Fight To Push Corn Prices Higher

  3. The iShares FTSE China 25 Index Fund etf has become popular with investors seeking China exposure. Here's why.
    Stock Analysis

    This ETF Offers Easy Access To China's Big Hitters

  4. These stocks have been weak, and despite rallies, investors might be better served by selling or shorting as opposed to buying.
    Chart Advisor

    Time To Take Profits On These 4 Rallying Stocks?

  5. With its huge population and booming economy, China is tops for many emerging markets investors. Here's a leveraged ETF for those who want to double down.
    Stock Analysis

    This Leveraged ETF Is For China Bulls

Trading Center