Heavy trucks seen working at a nickel mining area in Soroako, South Sulawesi, Indonesia.
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Invesco is betting that the boom in interest in electric vehicles will make a new trading opportunity in the metals required for EVs and the broad energy transition a hot new area for investors.
The Invesco Electric Vehicle Metals Commodity Strategy No K-1 ETF, which focuses exclusively on such metals, began trading Wednesday. The fund, which trades under the ticker EVMT, holds futures contracts tied to aluminum, copper, nickel, cobalt, zinc and iron ore. The portfolio will generally be concentrated in the front-month contract for each commodity.
Lithium, which is the key metal across EV batteries, is notably missing.
Jason Bloom, head of fixed income and alternatives ETF product strategy at Invesco, said lithium futures trading does not currently meet the firm’s minimum liquidity threshold for exchange-traded funds.
Metals prices have surged this year after Russia’s invasion of Ukraine prompted shortage fears, but Bloom sees even further gains ahead.
“Growth in demand for metals is part of the growth in EVs, and was beginning to catch up and in some cases outstrip supply,” prior to Russia’s invasion, he said. “The war in Ukraine simply highlighted the upside risk in these commodities.”
“We feel like there’s a fair amount of durability to the current fundamentals in the market,” he added.
The Wall Street Journal first reported the fund’s launch.
New mines take years to bring online and can face daunting permitting hurdles. In addition, the resource-intensive nature of mining means new projects often face opposition based on concerns from local communities. Forecasts have called for more metals needed to transition from fossil fuel dependence, which has prompted some observers to forecast prolonged shortages.
There are already a number of EV-focused funds, which primarily highlight car companies, battery makers and mining names. Invesco’s new fund is the first to focus exclusively on metals needed by EV manufacturers, the firm said.
The fund, which Bloom said has been in the works for over a year, was born in part from clients approaching Invesco and asking for a metals basket targeting EV growth. Invesco’s involvement in the broader commodity market made the new product a natural next step, Bloom said. The company will use its expertise with derivatives to optimize rolling contracts.
“We’re very excited about the prospects for these markets… buckle your seatbelt — you can’t guarantee returns [for commodities], but we’re pretty comfortable forecasting volatility,” Bloom said, with now being an attractive entry point.
The actively managed fund will be rebalanced on a biannual basis. Invesco seeded the new fund with roughly $28 million. The fund carries an expense ratio of 0.59%.