The electric vehicle (EV) industry has become massive in recent years. Elon Musk’s Tesla has always led the charge, innovating the industry and making it more commonplace.
My guide to the best Canadian lithium ETFs can help you identify some of the top assets to consider for this purpose.
Why Invest in Lithium?
Lithium, often referred to as “white gold,” has seen a significant rise in demand due to its pivotal role in the manufacturing of rechargeable batteries, primarily for electric vehicles (EVs). Morningstar analysts believe two out of three vehicles sold in 2030 will be EVs or hybrids.
Here are some compelling reasons to invest in lithium:
- Growing EV Market: With countries pushing towards greener alternatives to fossil fuels, the EV market is set to grow exponentially. Leading automakers are pivoting towards EVs, and lithium will be a vital component in powering this transformation.
- Limited Supply: While lithium is relatively abundant, the number of economically viable sites for extraction is limited, which can create a potential demand-supply gap.
- Diverse Applications: Beyond EVs, lithium has applications in various sectors, including electronics, aerospace, and even pharmaceuticals.
- Future Technologies: Emerging technologies and innovations, such as grid storage solutions and portable power solutions, further drive the demand for lithium.
Risks of Investing in Lithium ETFs
While there’s potential for lucrative returns, investing in lithium ETFs is not without risks:
- Market Volatility: The lithium market, like other commodity markets, can be volatile. Prices can fluctuate based on global economic conditions, advancements in alternative technologies, and geopolitical tensions.
- Regulatory and Environmental Concerns: Mining operations can face strict regulations, especially concerning environmental standards. Any changes in these regulations can affect profitability.
- Overreliance on Few Producers: Most of the world’s lithium supply comes from a handful of countries. Any disruption in these regions can significantly impact global supply chains.
- Technological Advancements: While lithium is essential for current battery technologies, breakthroughs in alternative battery technologies could reduce demand for lithium in the future.
Best Canadian Lithium ETFs
Not many lithium-focused ETFs are available in Canada, or worldwide for that matter. There are a few funds that offer significant exposure to businesses with lithium-related activities, among others.
This guide also includes several high-quality lithium stocks that you could consider investing in.
- Horizons Global Lithium Producers Index ETF (HLIT.TO)
- Global X Lithium & Battery Tech ETF (LIT)
- First Trust NASDAQ Clean Edge Green Energy Index Fund ETF (QCLN)
- Amplify Lithium & Battery Technology ETF (BATT)
1. Horizons Global Lithium Producers Index ETF (HLIT)
Horizons Global Lithium Producers Index ETF (HLIT) is the only Canada-listed fund that offers you exposure to lithium. HLIT ETF is the newest fund that started trading on the TSX in June 2021.
The fund seeks to provide you with investment returns by tracking the performance of the Solactive Global Lithium Producers Index before fees and expenses.
HLIT ETF also focuses on investing in the full lithium cycle as the underlying index consists of publicly-listed companies engaged in the mining and production of lithium, lithium compounds, and lithium-related components. The fund seeks to hedge the US dollar value of its portfolio to the Canadian dollar at all times.
2. Global X Lithium & Battery Tech ETF (LIT)
Global X Lithium & Battery Tech ETF (LIT) is widely regarded as the world’s first lithium ETF. LIT ETF is a US-listed fund that seeks to provide you with investment results corresponding to the price and yield performance of the securities as held in the Solactive Global Lithium Index.
From mining and refining the metal to battery production, the fund focuses on investing in the complete lithium cycle.
LIT ETF provides you with exposure to a globally diversified basket of equity securities that have substantial lithium-related business operations. It allocates 45.4% of all its assets to publicly-listed companies in China, its second-largest asset allocation is in the US at 21.9%, and third-largest in South Korea at 10.9%.
3. First Trust NASDAQ Clean Edge Green Energy Index Fund ETF (QCLN)
First Trust NASDAQ Clean Edge Green Energy Index Fund ETF (QCLN) is another US-listed ETF. The fund seeks to provide you with investment returns based on the price and yield performance of the securities as held in the NASDAQ Clean Edge Green Energy Index before fees and expenses.
The underlying index is a modified market capitalization-weighted index designed to track the performance of clean energy publicly-listed companies in the US with significant exposure to lithium.
This fund offers you diversification across several industries related to clean energy, but it is not a pure-play lithium ETF. It also focuses its entire asset allocation on US-listed companies, adding a slightly greater degree of capital risk.
4. Amplify Lithium & Battery Technology ETF (BATT)
Some key facts about Amplify Lithium & Battery Technology ETF (BATT)
Amplify Lithium & Battery Technology ETF (BATT) is another US-listed fund that could offer you exposure to lithium.
BATT ETF seeks to provide you with investment returns based on the performance of companies that generate significant revenue from developing, producing, and using lithium battery technology, including battery storage solutions, battery metals and materials, and electric vehicles.
BATT ETF accomplishes its goal by tracking the performance of equity securities as they are held in the EQM Lithium & Battery Technology Index. BATT ETF officially became a passively managed fund in 2020 instead of an actively managed fund.
Its most significant asset allocation is in China at 29.46%, its second-largest asset allocation is towards US-based companies at 20.51%, and its third-largest towards Australian companies at 12.10%.
- Allkem Limited (AKE.TO)
- Lithium Americas Corp. Stock (LAC)
- Standard Lithium Ltd. Stock (SLI)
- Sigma Lithium Ltd. Stock (SGML.V)
5. Allkem Limited (AKE.TO)
Allkem Limited was formed from the merger of Galaxy Resources and Orocobre Ltd. With the new merger in place, expansion of market share and growth is expected as well.
Allkem has lithium operations in Argentina, Australia, and Japan. There is also active development underway in both Argentina and Canada.
6. Lithium Americas Corp. Stock (LAC)
Lithium Americas Corp. stock is a Vancouver-based company that focuses on operations in Argentina and the US, two of the most lithium-rich nations worldwide.
The company boasts long-term upside potential through extensive mining operations. Its mining project in Argentina and the US boasts a life of 40 and 46 years respectively.
The company prides itself on the cost-efficient production methods that allow it to mine and refine the metal at an expense of around $4,000 per ton. With wide margins amid rising demand and relatively limited supplies, the company’s medium- and long-term prospects look bright.
7. Standard Lithium Ltd. Stock (SLI)
Standard Lithium is a Vancouver-based company that focuses its entire operations in the US. It has two operations in the US, one based in California and the other in Arkansas.
The company is a relatively smaller business, but it boasts a competitive edge through its use of chrematistic Direct Lithium Extraction (DLE) technology that allows it to tap into the power of lithium-rich brine.
The company does not extract the lithium-rich brine itself for its California-based operations. Instead, Standard Lithium has contracts with two companies in the region that give it access to all the raw materials it needs for its operations to produce battery-grade lithium.
8. Sigma Lithium Ltd. Stock (SGML.V)
Sigma Lithium Ltd. stock is another Vancouver-based company that was only founded in 2011. Sigma Lithium has operations based in Brazil, and it owns the right to mine from the most significant hard rock lithium deposits in the region.
It is a low-cost lithium producer with a focus on decreasing its carbon emissions to meet its ESG goals.
The company plans to reach net-zero carbon emissions by 2023, making it an attractive option for many investors who are concerned about the environmental impact of the companies they are investing in to gain exposure to lithium.
The $1.06 billion market capitalization lithium producer might not be the largest or the oldest company, but it’s trading at all-time highs at writing amid the lithium demand surge.
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Investing in the best Canadian lithium ETFs is an ideal way to gain exposure to the performance of the element that is the backbone of the EV industry for risk-averse investors.
You can invest in lithium stocks instead as a good alternative.
With rising inflation rates increasing living costs, you might also want to consider gaining exposure to commodities-related baskets of securities. If you want to invest in commodities, check out my list of the best commodity ETFs in Canada to explore your options.