[Practical Finance] Invest in Eco-Friendly Raw Material ETFs Covering Lithium, Zinc Production, Refining, and Recycling...

Invest by Separating Each Raw Material
Natural Gas-Related ETFs Show Weakness

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Gong Byung-sun] As the global energy market shifts toward eco-friendliness, interest in environmentally friendly raw material-related exchange-traded funds (ETFs) in the U.S. market is also increasing. However, securities industry experts advise that investments should be differentiated by raw material according to climate and other conditions.

According to the financial investment industry on the 17th, the U.S. ETF market is still booming, centered on raw materials. From the 3rd to the 10th of this month, $22.68 billion flowed into the U.S. ETF market. Among these, raw material-related ETFs showed a return of about 3% during this period, following consumer discretionary sectors (about 4.5%).

Raw material prices are interpreted to be rising due to global supply chain shocks. This is the result of several complex factors, including the suspension of major global production bases caused by the COVID-19 Delta variant and labor shortages due to unemployment benefits paid by the U.S. government.

Since COVID-19 is the main cause, there are concerns that if this situation is resolved, the attractiveness of raw material-related financial products may also decline. However, the securities industry analysis suggests that this possibility is low. Jeon Gyu-yeon, a researcher at Hana Financial Investment, explained, "The rapidly growing electric vehicle market, driven by countries promoting eco-friendly policies and accelerating investments, increases metal demand," adding, "Moreover, raw material exports are concentrated in certain countries, and production disruptions frequently occur due to each country's production capacity and political uncertainties."

Raw material ETFs aligned with eco-friendliness are also emerging. On the 11th (local time), U.S. asset management firm VanEck launched the 'VanEck Green Metals ETF (GMET).' This ETF mainly invests in companies that produce, refine, and recycle lithium, copper, and zinc, which are emerging as eco-friendly metals. Given that the electric vehicle and renewable energy industries have the disadvantage of high mineral consumption per unit, this financial product reflects expectations that the eco-friendly metal industry will rise. VanEck plans to analyze demand for eco-friendly metals while also considering the geographical risks of countries on the supply side, such as China, Chile, and Congo.

However, it is analyzed that investments should be differentiated by raw material. ETFs related to natural gas are showing weakness. The 'United States Natural Gas Fund (UNG)' and 'iPath ETN Bloomberg Natural Gas Subindex (GAZ),' based on natural gas-related indices, fell by 12.9% and 12.8%, respectively, from the 1st to the 12th of this month. Lee Jung-yeon, a researcher at Meritz Securities, explained, "Natural gas prices have been declining since early last month’s peak," adding, "Inventory accumulation due to milder-than-expected winter weather had a negative impact."

This content was produced with the assistance of AI translation services.