Rare earth metals have become increasingly important in high-tech and green energy industries. This has led to growing investment interest in rare earth metals mining and processing companies. Rare earth metals investment funds provide a way for investors to get exposure to this sector. These funds invest in companies along the rare earth metals supply chain from mining to processing and technology. Funds focused on rare earths can benefit investors by providing diversification and exposure to secular growth trends. They may also aid the development of rare earths supply chains outside China. This helps mitigate the risks of dependence on a single major supplier country.
Investment funds tapping into rare earth metals growth
Many specialty investment funds have been launched to capitalize on surging demand for rare earth metals. Funds such as the VanEck Rare Earth/Strategic Metals ETF hold shares of leading non-Chinese rare earths miners and processors. These include MP Materials and Lynas Rare Earths. Other funds take a broader approach. The SPDR S&P Metals & Mining ETF provides rare earth exposure along with diversification into other metals and mining companies. These funds offer a simple way for investors to gain upside from expected growth in rare earths demand while mitigating company-specific risks.
Potential to aid industry development outside China
Increased investment in non-Chinese rare earth companies could help spur the development of rare earth supply chains in other countries. Today, China controls over 80% of global rare earth processing capacity. Many countries are eager to reduce reliance on Chinese rare earths that are critical to advanced technologies and defense applications. Funds investing substantial capital in rare earth mining and processing ventures outside China may help drive industry growth. This could involve supporting projects across the supply chain from upstream mining through to downstream processing and metal refining.
Focusing capital on sustainable rare earths production
Some specialty investment funds also consider environmental, social and governance (ESG) factors related to rare earths production. For example, the SPDR S&P Metals & Mining ETF screens out companies with poor ESG practices. Rare earth processing can generate hazardous wastes when not done responsibly. Funds that direct capital towards sustainable rare earth extraction and processing could help improve ESG performance across the industry.
Risks include volatile prices and dependence on China
While investing in non-Chinese rare earths companies seems appealing, these specialty funds still face risks. Rare earth metals prices are highly volatile, leading to uncertainty in company earnings and valuations. And despite growth outside China, Chinese mines still account for around 60% of global rare earth ore output. This means non-Chinese processors rely heavily on Chinese feedstock. Any supply disruptions or export restrictions from China could severely impact their output. So funds need to be cautious about dependence on Chinese rare earths supply despite seeking non-Chinese processing investment exposure.
Rare earth focused investment funds offer exposure to rising global demand trends in critical technology metals. They may also aid in developing supply chains outside China. But risks around volatile rare earth prices and China dependence persist.