REMX ETF: Question & Answer

Rare earth and strategic metals have increasingly come into focus as demand has risen in recent years, corresponding with the increasing momentum behind the global energy transition toward a more sustainable, low carbon world. Despite this attention and demand, there exist few clear-cut public investment opportunities to access upstream exposure to these metals. VanEck Rare Earth and Strategic Metals ETF (REMX^®) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS^® Global Rare Earth and Strategic Metals Index (MVREMXTR), which is intended to track the overall performance of companies involved in producing, refining, and recycling of rare earth and strategic metals and minerals. This blog is intended to answer frequently asked questions on rare earth and strategic metals and VanEck’s Rare Earth and Strategic Metals ETF (REMX).

• What are Rare Earth and Strategic Metals?
• How are Rare Earth and Strategic Metals Used?
• How Can Investors Access an Investment in These Metals?
• What are the Risks of Investing in these Metals?
• How Much Influence Does China have on the Market?
• What Metals Exposure is Prevalent in REMX?
• How to buy VanEck ETFs?

What are Rare Earth and Strategic Metals?

Rare earth elements (REEs) are a group of 17 elements composed of scandium, yttrium, and the 15 lanthanides. In addition to REEs, many investors are interested in other strategic or critical metals such as lithium, cobalt and molybdenum. These REEs and strategic metals have been used in many of the technological innovations of the past several decades and are expected to contribute to the innovations of tomorrow.

Although the name implies scarcity, REEs aren’t all that rare. Cerium, for example, is actually more common than copper. However, many REEs do not always occur in quantities that are commercially viable to mine.

REMX’s index provider, MarketVector Indexes GmbH, currently defines rare earth and strategic metals as follows:

Source: MarketVector Indexes GmbH

How are Rare Earth and Strategic Metals Used?

REEs and strategic metals have been increasingly used in high tech applications linked to defense or the transition to a low carbon world, among others. These uses have pushed demand for many of these metals higher in recent years and current trends indicate that demand may only increase.

Common Uses for Rare Earth and Strategic Metals

How Can Investors Access an Investment in These Metals?

Physical investment in these metals is not realistic, but there are several futures contracts offering derivative exposure to a subset of these metals such as lithium and cobalt. Futures exposure can be complicated and come with a set of risks unique to futures market structure, such as contango and backwardation. Another way to access this space is through an equity investment in the companies that are involved in the extraction and processing of these metals. Their share price is influenced by the supply and demand dynamics that also influence metals prices. REMX provides global exposure to companies involved in producing, refining and recycling rare earth and strategic metals.

What are the Risks of Investing in these Metals?

As a commodity, rare earth and strategic metals are heavily influenced by supply and demand trends. As such, the metals and companies involved in extracting and processing them can be cyclical in nature. This segment of the market has exhibited a high level of volatility, historically. Additionally, because many governments classify a large portion of these metals as “critical,” investing in them can be subject to geopolitical risks. One clear risk is exposure to China. China dominates the REEs market, and changes to their production processes and policies have had an outsized impact on the supply chain globally.

How Much Influence Does China have on the Market?

It is well documented that China dominates the production of REEs and has become more and more involved in the fabrication of products that contain REEs, such as magnets. Their grip on the supply chain has prompted governments to develop plans to reduce their dependency on China. In 2018, the U.S. Department of Defense issued a report stating: “With increased offshoring of manufacturing, many companies have excised their process engineering capabilities, further reducing technical innovation and deterring future investment in next generation manufacturing…these effects jeopardize the ability of America’s manufacturing base to supply innovative products and skilled workers to the industrial base, threatening capabilities needed for national security.” REMX has often had exposure to Chinese companies in excess of 40% of its assets and much of that exposure is to onshore A-share listings available via the Hong Kong Stock Connect program. Investors should be aware of China’s important role in this market as well as the risks that come with it.

What Metals Exposure is Prevalent in REMX?

Because many rare earth and strategic metals are produced in combination with a wide range of other metals, including widely mined precious and base metals, it is difficult to quantify the portfolio level exposure to each individual metal in REMX. Many of REMX’s portfolio companies have broad exposure to more than one rare earth and/or strategic metal, but several metals have had prominent exposure in recent years. REEs, lithium, cobalt, titanium, tungsten, and molybdenum have all been common exposures within REMX’s broader rare earth and strategic metals portfolio.

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