Commodities & Metals

Rare Earth ETF Shows Global Theme (REMX, TIE, TC, RTI, MCP, GMO, REE)

Van Eck Global has a history of launching niche ETF products.  Today’s launch of Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) is no exception.  This new ETF is the first ETF for US investors that offers a pure-play on equities of the companies whose businesses are geared around the production, refining, and recycling rare earth materials.   This is a hot sector currently, and the sector has many cult stock candidates in it.  US-traded components are as follows: Titanium Metals Corporation (NYSE: TIE) 6.7%; Thompson Creek Metals Company Inc. (NYSE: TC) 6.3%; RTI International Metals, Inc. (NYSE: RTI) 5.6%; Molycorp Inc. (NYSE: MCP) 4.1%; General Moly, Inc. (NYSE: GMO) 2.4%; Rare Element Resources Ltd. (AMEX: REE) 2.5%.

The rare earth ETF aims to track the Market Vectors Rare Earth/Strategic Metals Index.  The index is a modified-capitalization weighted and float-adjusted index.  The companies inside the index must have the capacity to generate more than 50% of their revenues from rare earth materials and strategic metals.  As of October 13, 2010, the index was comprised of 24 stocks from Australia, Canada, China and the United States.  The Chinese stocks are limited to those which are currently available to foreign investors via the H-shares.  The above mentioned come to less than 30% of the combined weighting of the entire ETF, hence the large international focus. Other internationally traded stocks included in the index/ETF are as follows:

  • Lynas Corp Ltd LYC AU
  • Il uka Resources Ltd ILU aU
  • OSAKA Titanium Technologies Co 5726 JT
  • Toho Titanium Co Ltd 5727 JT
  • China Molybdenum Co Ltd 3993 HK
  • Kenmare Resources PLC KMR LN
  • Hunan Non-Ferrous Metal Corp 2626 HK
  • Neo Material Technologies Inc NE M CT
  • Cia Minera Autlan SA B de CV AUT LAN B MM
  • China Rare Earth Holdings Ltd 769 HK
  • Ferbasa-Ferro Ligas DA Bahia FESA 4 BS
  • Avalon Rare Metals Inc AV L CT
  • Arafura Resources Ltd ARU AU
  • International Ferro Metals Ltd IF L LN
  • Quest Rare Minerals Ltd QRM CV
  • 5N Plus Inc GXY AU
  • Galaxy Resources Ltd VN P CT
  • Dai ichi Kigenso Kagaku-Kogyo Co 4082 JT

REMX has a gross expense ratio of 0.63% and a net expense ratio of 0.57%.

Rare earth and strategic metals are industrial metals are needed for a whole host of industries, from basic metals production to defense to alternative energy to batteries and on and on.  Some are known like Manganese, Titanium and Tungsten, but others such as Bastnasite, Cerium, Lanthanum, Praseodymium, Neodymium, and Europium are hardly known by most people.

This ETF created a large run in several of the components listed here.  After barely an hour, we have seen over 700,000 shares trade.  This is a hot sector in rare earth elements and rare earth oxides, and this ETF is one which needs to be watched very closely.  Most ETFs are meant to track indexes, but the nature of this ETF could actually be an example where an ETF actually creates a move in the underlying stocks more than others.  Most rare earth companies are not exactly the world’s largest companies.

If you end up with a figure of $2 billion (a theoretical figure of course) for the size of the ETF, imagine what this would do to some shares of these companies.  As noted yesterday, this is a tail that could easily wag the dog.

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