I recently had the opportunity to test drive a Tesla Model S and I must admit that I was impressed by the driving experience, the workmanship—the attention to detail and the advanced technology present in the car. Although I didn't end up buying one, I understand why some people do.
So, no electric car for me (yet), but I did move into a new house and I noticed that I was buying more battery-powered tools vs. gas operated or the variety tethered to an electrical outlet. I'm not the only one—there has been a clear change in consumer behaviour as sales for electric vehicles (EVs) and other battery-operated tools grow rapidly, supported by falling battery prices, the proliferation of battery-powered options, and the consumer preference for cleaner alternatives.
For now, most of these tools and EVs are powered by lithium-ion batteries and investors have taken notice.
Powering up on lithium
We recently introduced a holding to the MD Strategic Opportunities Fund. Ticker: LIT US is an ETF that focuses on investing in the largest and most liquid listed companies active in the exploration and/or mining of lithium or the production of lithium-ion batteries. The ETF is an excellent fit to the objective of the Fund because it provides access to assets not owned in traditional portfolios.
The future of lithium looks promising. While global automobile sales have slowed 2% during the first quarter of 2019 relative to 2018, EV sales have actually increased by 57%, with 496,000 vehicles in quarterly sales. Last year alone, 1.9 million EVs were sold worldwide, joining the approximately 5 million total EV drivers on the roads today. These numbers are expected to grow rapidly as the regulatory environment continues to support low emissions vehicles.
Better than old-school batteries
Compared to lithium-ion batteries, standard batteries have a greater environmental impact both pre- and post-manufacturing. Lead-acid batteries require more material in their manufacturing to produce the same energy storage as lithium-ion batteries.
Lithium-ion batteries do have their environmental issues as well—manufacturing requires the mining of copper, aluminum, iron ore and lithium carbonate. However, unlike lead-acid batteries, lithium-ion batteries are significantly easier to recover and recycle.
ETFs provide efficient exposure to alternative assets
If you're looking for exposure to alternative assets like lithium, ETFs provide efficient exposure with highly liquid markets and tight bid/offer spreads. ETFs are evolving rapidly with new exposures being added all the time with increasing market capitalization and trading volumes.
Our internal Portfolio Management team that oversees the MD Strategic Opportunities Pool has developed a deep understanding and expertise of the ETF market, supported by a global network of ETF providers and brokers.
We are constantly monitoring for opportunities to add meaningful diversification within the Strategic Opportunity Fund through exposures to new alternative asset classes. Our process is built around multiple criteria, such as portfolio diversification benefit, overall risk/return, market capitalization, traded volume and liquidity.
Investing in technology and your future
For growth-seeking investors, we believe finding technology that is somewhere between early adoption and early majority stages could prove to be the sweet spot. Lithium and lithium-ion batteries are exciting and have the potential for robust growth. At this time, we have introduced a small allocation to the MD Strategic Opportunities Fund. Mass adoption risk lingers, so we will continue to monitor the market closely.
If you have questions about this recent investment, alternate assets, or the role they can play in your portfolio, please don't hesitate to contact your MD Advisor*.
* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.