Investing in Lithium & Battery Tech ETFs

Lithium-ion batteries are already in widespread use, thanks to smartphones and tablets. Now the technology is gaining ground in the automotive industry. Electric vehicles (EVs) are booming as automakers apply batteries to their vehicle lineups. By 2030, some estimates predict EVs will make up one-quarter to one-third of all new vehicle sales. Almost 67 million vehicles were sold worldwide in 2021, so the upside for lithium and battery technology is significant for the next decade.

The lithium-ion battery industry is a complex web of basic materials suppliers, manufacturers, and component designers. Picking the best stocks can be a real challenge. That’s where investing in a lithium and battery technology ETF (exchange-traded fund) comes in.

Investing in lithium and battery tech ETFs

An ETF is a basket of investments designed to give an investor diversification -- in this case, a mix of companies that participate in the lithium and battery tech industry.

An ETF focused on lithium battery tech will provide diversification across the industry, from lithium mining companies to battery manufacturers to EV automakers that integrate the tech into a vehicle. Since lithium batteries used in larger applications are still undergoing rapid development, there are few choices for ETF pure plays in the industry. However, a number of ETFs pull together collections of businesses that operate in industries adjacent to lithium battery tech and are worth considering as well.

1. Global X Lithium & Battery Tech ETF

The Global X Lithium & Battery Tech ETF is one of two funds available in the U.S. that is solely focused on the lithium battery market. The fund, created in 2010, manages $4.6 billion in investor funds. It charges 0.75% a year in fees -- or $7.50 deducted from fund performance on an annualized basis for every $1,000 invested.

Global X’s ETF runs the gamut in the lithium technology space. Half the funds are allocated to lithium mining companies, with top lithium producer Albemarle (ALB 0.93%) being the largest holding. A major collection of battery manufacturers based in China and South Korea also dominates the portfolio (Yunnan Energy, Samsung, Panasonic, and LG Chem, to name a few). A handful of consumer product manufacturers are sprinkled in, with EV pioneer Tesla (TSLA 12.06%) being the best-known stock. Global X Lithium & Battery Tech ETF is made up of 39 holdings.

Although lithium battery technology is exciting for its potential, it’s important to note that it’s a volatile industry. Many of the stocks will fluctuate in value based on the market price of lithium. In recent years, lithium prices have rocketed higher, and the ETF has performed well. But since its inception in 2010, the fund is up less than 200% when accounting for dividends paid and reinvested, trailing the performance of the S&P 500 Index by a wide margin.

2. Amplify Lithium & Battery Technology ETF

The Amplify Lithium & Battery Technology ETF is the second pure-play lithium battery ETF available in the U.S. At just 0.59% per year, it has an even lower expense ratio than Global X’s offering. The fund is made up of 90 stocks, so it also covers more ground.

But more stocks and lower expenses have not equated to better investor returns. Since the Amplify Lithium & Battery Technology ETF launched in the summer of 2018, it has lost 20% of its value. The fund is diversified across various metals (including cobalt, which is also used in batteries) and end markets (not just EVs but also energy grid applications for batteries). However, the stocks in this industry are volatile and young, and it’s been a rough go for investors.

3. iShares Global Clean Energy ETF

The iShares Global Clean Energy ETF isn’t solely focused on lithium production and batteries. Rather, this ETF has a wider scope, with investments in clean energy companies that include lithium and battery technology. The iShares fund includes some of the names found in the GlobalX and Amplify ETFs, too. But the ETF predominantly invests in adjacent industries such as solar and wind and companies that provide materials and components for solar and wind.

The iShares fund was launched in 2008 and manages $5.6 billion in investor funds. The portfolio comprises 99 different stocks, and the annual fee is a reasonable 0.42% a year. Top stocks in the fund include renewable energy infrastructure companies such as Brookfield Renewable (BEPC -0.09%) and hydrogen power cell developers (a type of electricity-storing battery) such as Bloom Energy (BE -1.93%). More than 30% of the portfolio is made up of semiconductor and equipment companies, which have some overlap with the lithium battery industry.

The ETF has underperformed the market at times over the past decade. But midway through 2022, the fund was outperforming the S&P 500, thanks to a recent surge in renewable energy interest caused by soaring fossil fuel prices.

4. First Trust Nasdaq Clean Edge Green Energy Index Fund

The First Trust Nasdaq Clean Edge Green Energy Index Fund is another broad-based ETF that covers all things renewable energy. The fund has amassed a sizable following, with $2.2 billion in assets under management, and it charges a 0.58% annual fee.

First Trust’s offering is composed of 65 stocks and has some overlap with its iShares counterpart. However, First Trust’s portfolio extends its reach more into lithium batteries with some EV makers such as Tesla and China’s Nio (NIO 3.49%). It also features lithium producer Albemarle and semiconductor designers such as ON Semiconductor (ON 6.24%) that provide components for batteries and other renewable energy equipment.

The ETF has been around since 2007, and its exposure to the technology producers that make renewable energy and lithium battery tech possible has meant sizable returns. The fund’s total return is up almost 700% over the past decade, although it isn’t immune from some volatile swings in valuation like its peers on this list.

5. Ark Autonomous Technology & Robotics ETF

The final option on this list comes from famous growth investor Cathie Wood’s company Ark Invest. One of its funds, Ark Autonomous Technology & Robotics ETF, lists “energy storage” as a top segment it invests in. Of course, this is far from a pure play on lithium and batteries since other areas, such as 3D printing and autonomous transportation, also feature prominently here.

Stocks such as Tesla and China’s BYD (BYDDY 2.01%) make battery technology a top mover of the Ark ETF. Despite severe market underperformance arising from the bear market of 2022, ARK Autonomous Technology & Robotics ETF still commands $1.1 billion in assets and has done well overall since its 2014 inception. It charges a 0.75% annual fee.

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A portfolio energized by lithium battery technology

Lithium battery tech and adjacent stocks hold a lot of promise in the next decade. Electric vehicles are on the rise, and many of the world’s utility companies are looking for ways to make energy distribution more efficient. Batteries are a massive growth trend that could translate to fantastic investor returns.

But bear in mind that nothing is guaranteed in the investing world, especially with new and emerging trends. Lithium and battery stocks will likely be far more volatile than the stock market overall. Plan carefully when deciding whether to include an ETF from this list in your well-diversified portfolio.