Analyzing the LIT ETF Changes

Much has been made of the LIT ETF, both positive and negative.  But whether you love or hate the fund, there’s no denying that it has quickly become a popular ETF, with close to $1B in net assets.  Additionally, it is the only fund, active or passive, that provides exposure specifically to the full lithium cycle.  As such, we believe in keeping an eye on them and the moves that they make.  Thus, given the recent changes they’ve made to their holdings, we decided to cover them in this post.

Looking at the two figures at the bottom of the post, we can see that Global X has made some big changes to their fund, starting with expanding the number of companies held in the portfolio.  The most notable changes in our opinion have been:

  • Doubling the size of the positions in Pilbara Minerals, Nemaska Lithium, Orocobre, Lithium Americas, Galaxy Resources, and Bacanora Minerals.
  • Decreasing FMC’s position size from 25% to less than 17%
  • Increasing ALB from less than 5% of the portfolio to 19%, making it the largest position
  • Adding Altura Mining, Millenial Lithium, Lithium X, Lithium Australia and Neometals to the holdings

These changes tell us quite a few things.  First, by doubling the size of the fund’s holdings in junior miners, we see that Global X is making a huge bet on the continued favorable environment for lithium junior miners.  The juniors are all still pre-production, but this basket of companies are among the more prominent new entrants who have solid backing and partnerships.  As such, it makes sense for an ETF to choose these companies to make bigger bets in as it provides the tremendous upside potential of junior miners while avoiding the risk of the more speculative earlier stage juniors.

Furthermore, one of the biggest criticisms of the fund was that FMC represented a large portion of the fund, despite the fact that less than 10% of FMC’s business was derived from the lithium segment.  By demoting it to 17%, Global X told investors they understood the concerns, and worked to rectify the situation.  

Subsequently, by increasing ALB to the largest position, the fund managers are signaling that they understand that ALB is one of the crucial members of the Lithium Oligopoly and that it is here to stay.   We agree with the sentiment, as evidenced by our analysis of the company.  Additionally, for those who don’t particularly like Albemarle Corp., it’s hard to deny the liquidity in ALB’s stock, the company’s size and scale, and its exposure to the lithium industry. Thus, making it one of the top weightings in a lithium fund is definitely not a bad way to go.

Finally, the new junior miner additions to the fund shows the market’s faith in the newer potential entrants.  We predicted that the fund could buy Altura and that this would be a great headwind for the stock.  Since then, the stock has ripped, increasing by over 100%.  Similarly, looking ahead at the next big move that the ETF might make could be a great opportunity from an investment perspective. There’s opportunity in looking at where the ETF might either increase their current holdings or invest in new companies start new positions. in next.   Already, we see that the fund has dipped their toes in other smaller junior miners by securing stakes in Millenial Lithium and Lithium X.  Will the fund increase their position substantially, sending those shares higher like Altura?  Lithium Australia and Neometals are both new positions, will those be doubled over time?  Finally, who will the LIT ETF purchase next?  Tawana Resources is completely flying under the radar at only $153 Million Market cap and will be one of the next companies to produce in 2018.  Could it be them?   This is a tough question to answer, but as always, we’ll keep an eye on all of the potential new candidates as they pop up on the radar.  But we love hearing our readers’ thoughts!

Holdings as of 8/31/17:

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Source: Global X website

Holdings as of 11/1/17:

11-1
Source: Global X website

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