Lithium At Last

by John Rubino on July 20, 2010

Better batteries are crucial to the spread of clean tech, and lithium is the main ingredient in one type of next-generation battery. But investing directly in lithium is a challenge: The field is new and the companies speculative, making a diversified portfolio very hard to construct.

That’s about to change, however, with the launch of an ETF promises to roll a diversified lithium portfolio into a single stock:

New ETF Charges Up a Niche

Call it ETF on demand.

Bolivian magnate R. Marcelo Claure had been looking for a way to make a broad-based bet on lithium. A hedge fund in which he invests found him one.

The fund, MC Capital Advisors, this year turned to a company that creates exchange-traded funds. The result was Global X Lithium, an ETF that tracks lithium producers and battery makers. It is expected to launch this week.

MC Capital provided seed money to New York-based Global X Management Co., to start the ETF, and will receive half the ETF’s profits.

Global X Lithium is an unusual case of ETF creation. But it also is part of a trend in which ETF firms are joining forces with other companies to launch funds that track obscure parts of the financial markets. ETFs typically are tradable securities designed to track an index of stocks, bonds or commodities.

…MC Capital, along with Mr. Claure, was interested in lithium. In February, the hedge fund called Global X Management to suggest the idea of creating a lithium-related ETF. MC Capital wasn’t involved with the specifics of the index construction, and won’t have inside access to any trading information, said Guillermo Trias, a portfolio manager at the fund.

“What everybody wants to achieve is to build the best and most representative index for lithium,” said Bruno del Ama, chief executive of Global X Management. He said the firm already was considering such a fund. Global X hired Structured Solutions AG to develop an index comprising about 20 companies.

Mr. Claure, the Bolivian magnate, said in an email he had spent years looking for an easy way to invest in lithium. The 39-year-old is the founder of Brightstar Corp., one of the world’s largest distributors of hand-held devices, with $3 billion in revenue in 2009. His Bolivian roots got him interested in lithium, he said, because the country has one of the world’s largest deposits.

The highly reactive metal isn’t traded on any commodity exchange. Companies producing lithium are either multinationals where lithium accounts for only a small portion of their businesses or nascent miners where production still is years away.

While lithium is commonly used in batteries for cellphones and other electronic gadgets, its brightest future appears to be in the movement toward electric cars. Tesla Motors Inc.’s Roadster runs on thousands of small lithium-ion battery cells.

Lithium prices have tripled since 1999, according to Credit Suisse. Global demand for the metal is expected to more than double by the end of this decade, according to TRU Group Inc., a Toronto independent consultant specializing in lithium.

Some analysts warn against the “overhype” in the lithium market. About 50 companies were set up over the past two years to develop lithium, but more than 80% of them will never come into production due to technology challenges and costs, said Edward Anderson, president of TRU Group. Lithium also is in abundant supply, he said.

Still, Mr. Claure said he sees lithium as the “commodity of the future” and will expand his investments in the industry over the next few years. Higher lithium prices, he said, also will bring in more investment to his home country.

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