New ETF Alert: This Rare Earth Fund Stands Out in the Crowd

The number of US-traded exchange-traded funds (ETFs) has grown so rapidly.

It is inevitable that many new funds will be similar to existing ones. In the case of the Sprott Rare Earths Ex-China ETF (REXC), there is a clear difference from everything that came before it.

REXC debuted on Tuesday, so it currently has just $2 million in assets. But given that the VanEck Rare Earth Strategic Metals ETF (REMX) is the only counterpart in existence, REXC has at least attempted to do something unique.

The fund focuses specifically on companies whose core business (majority of revenue) is derived from mining, producing or refining rare earth minerals. Excluding Chinese companies, the brand new ETF aims to identify and own companies that have become an urgent national priority in the US and elsewhere outside China.

A fundamental question reshapes the landscape of the strategic minerals market: can the West really do without the East?

For years, the rare earth industry had become synonymous with a major player, making any investment in space virtually a bet on a country’s export policy. However, the arrival marks a definite shift towards bifurcated supply chains. It is the first vehicle designed to capture the industry’s growth by clearly bypassing the current global leader.

The case for this “pre-China” approach is based on the growing trend of national security-driven infrastructure. Governments across North America and Europe are increasingly investing billions in domestic mining and refining capabilities to ensure that materials for everything from high-end semiconductors to aerospace guidance systems are sourced from friendly jurisdictions.

REXC represents a high-conviction bet on these emerging non-China champions. In place of Chinese companies, the focus here is on miners in Australia, Canada and the US who stand to benefit the most from this huge capital reallocation.

However, there are significant risks that make this industry like the public version of venture capital strategy. While the world is racing to build new mines, the specialised knowledge and infrastructure needed to refine these minerals into a useful form are heavily concentrated in the same region REXC wants to avoid, China.

This creates a lag between mining of ore and actual revenue generation. Furthermore, except for the largest and most established players, the fund is inherently more volatile, being associated with smaller companies that face steeper climbdowns in a higher interest rate environment.

With REXC, the bet is essentially on a future where the supply chain is completely re-engineered. This is not dissimilar to what is being considered regarding AI firms versus legacy software businesses.

Will the new wave of up-and-comers really put the brakes on existing companies? Or is the hype far ahead of realistic long-term deliverables? REXC is here to help answer that question in the form of an ETF over time.

Created by Rob Isbitts roar scoreBased on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and build their own portfolios. For Rob’s written research see ETFYourself.com.

On the date of publication, Rob Isbitts did not have (directly or indirectly) a position in any securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on barchart.com