Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
ETF Deep dive: ACDC
If there was an award for the exchange-traded fund (ETF) with the best ticker code, it would unanimously be awarded to ETF Securities’ Battery Tech & Lithium ETF (ASX: ACDC).
Named after Australia’s most high-voltage rock band, ACDC provides Australian investors with diversified exposure to the renewable energy megatrend; specifically, companies involved in building battery technology and the lithium that powers them.
It’s a long way to the top (if you want to reach net zero)
The race to decarbonise the planet has accelerated the development of renewables and technology.
Bloomberg New Energy Outlook predicts that by 2050 nearly half of the world’s power will come from either wind or solar. To build sufficient baseload power to replace coal and gas, this energy needs to be stored somewhere. Hence the importance of battery technology. Traditional lead batteries lack the efficiency or storage potential, and newer tech remains nascent in commercial settings.
Energy isn’t the only industry changing rapidly. Deloitte forecasts by 2030 that 32% of all new car sales will be electric vehicles, with that number only accelerating in further years. As a result, there has been surging demand for lithium, which powers the batteries in electric vehicles. S&P Global expects demand for lithium to increase fourfold by 2030, with a high probability of a supply deficit.
This is the investment case. Battery technology is a non-negotiable to carbonise the planet. And to do this, the world needs literally tonnes of lithium.
Highway to heaven
To capture the opportunity, ACDC holds 33 companies, chosen on two criteria:
- Battery storage companies must be classified as electrochemical, having an energy capacity of at least 1 MWh and identified as energy storage technology manufacturers.
- Mining companies are selected from Fastmarkets Metal Bulletin and must be producing battery-grade lithium
The ETF has struggled recently with a one year return of 2.7%. But has performed admirably over three years with a return of 27.0% per annum.
From a geographic viewpoint, the United States (21.7%), South Korea (21.6%) and Japan (11.2%) have the largest weighting. ACDC is rebalanced every six months so each holding has an equal weighting. This means no one company should dominate the index unless its share price explodes.
The basket of companies has an average market capitalisation of $20.7 billion. Size doesn’t mean lower risk, but most of the companies make real profits and are not speculative mining explorers or tech companies.
Notable holdings include SolarEdge which manufactures power optimisers, solar inverters and monitoring systems for photovoltaic arrays (solar cells which convert the light to electricity). Another is Japanese based NGK Insulators, responsible for the world’s first commercialised battery storage system.
In summary, ACDC is a simple way to get international exposure to renewable energy generation and storage.
Hell’s bells
Like ACDC concert tickets, the ETF doesn’t come cheap. For the privilege of investing, the manager charges a management fee of 0.69% a year, which is at the pointy end for a passive index product. For comparison, most fund managers charge anywhere from 80 to 120 basis points with active stock selection.
The ETF also has some questionable inclusions and exclusions. For example, the world’s largest lithium metals producer Gangfeng is excluded. Another notable absentee is chemical manufacturer Albemarle, which was the largest supplier of lithium in 2020.
On the flip side, ACDC includes companies most would not associate with either batteries or lithium. Lockheed Martin,the infamous US military and defence manufacturer stands out. Other questionable holdings include carmakers Nissan, BMW, Mercedes and Renault.
Finally, investors should also be aware of the currency risk, which is unhedged. This means movements in the Japanese Yen, US Dollar or Euro could impact the performance of the ETF independent of the underlying holdings.
Let there be rock
If you want exposure to lithium or battery technology, you could do far worse than ACDC. Despite its expensive price tag and some questionable holding choices, the ETF will do what it says on the tin: provide exposure to the megatrends of battery technology and lithium.
Information warning: The information in this article was published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169
