Commodities and metal prices have been on the rise during the pandemic. Supply chain issues and soaring demand for technology have sent inflation rates higher. Cobalt prices have been climbing, more than doubling since summer 2019.
There are lots of mining companies that extract cobalt for commercial purposes. For many investors, investing in cobalt can be best achieved by purchasing shares of an exchange-traded fund (ETF).
Investing in cobalt ETFs
Cobalt is a common element found around the world, usually as a byproduct of refining copper or nickel. Cobalt has widespread uses. In recent years, demand has been steadily rising for its use in electric cars. As more automakers electrify their vehicles, the demand for cobalt is expected to go up because of its use in lithium-ion batteries. However, cobalt is also used in alloys to make magnets and jet turbines and in dyes and paints for its blue pigment.
Since cobalt is obtained from the mining of other metals, investors can get access to this essential element via a number of mining stock and base materials ETFs.
| Exchange Traded Fund | Annual Expense Ratio | Assets Under Management | Description |
|---|---|---|---|
| Materials Select Sector SPDR Fund (NYSEMKT:XLB) | 0.1% | $7.8 billion | A fund that invests in the stocks of the materials sector in the S&P 500. |
| Vanguard Materials ETF (NYSEMKT:VAW) | 0.1% | $5.3 billion | Another top ETF that invests in mining and base materials stocks. |
| iShares MSCI Global Metals & Mining Producers ETF (NYSEMKT:PICK) | 0.39% | $1.7 billion | A portfolio of metal and material mining stocks from around the world. |
| Amplify Lithium & Battery Technology ETF (NYSEMKT:BATT) | 0.59% | $196 million | A fund focused on stocks in the lithium- ion battery industry. |
1. Materials Select Sector SPDR Fund
The Materials Select Sector SPDR Fund is made up of stocks from the materials sector of the S&P 500. This is a large fund with almost $8 billion in assets. It charges a minimal fee of 0.1% annually ($1 for every $1,000 invested).
Although not a direct investment in cobalt, the companies in this portfolio produce chemicals and construction materials and are involved in the mining of metals and other elements. There are 28 stocks in the portfolio. As of April 2022, the top holdings included industrial gas producer Linde (NYSE:LIN), and mining operators Freeport McMoRan (NYSE:FCX) and Newmont (NYSE:NEM).
2. Vanguard Materials ETF
Another base materials, metals, and mining fund is the Vanguard Materials ETF. It also has a very small annual fee of just 0.1%, and manages more than $5 billion in assets.
With 116 stocks in the portfolio, this is a much broader play on metals and base materials. Almost all the fund’s holdings are U.S.-based companies. The Vanguard Materials ETF also pays a modest dividend of 1.5% for investors in search of investment income.
3. iShares MSCI Global Metals & Mining Producers ETF
If you’re interested in a more direct investment in mining stocks, the iShares MSCI Global Metals & Mining Producers ETF is a top choice. This also is not a pure play on cobalt, but the ETF portfolio consists of 218 global mining stocks. It has an annual expense ratio of 0.39%.
Because it invests in stocks not listed on a U.S. exchange, the iShares MSCI Global Metals & Mining Producers ETF has top holdings in some of the world’s largest cobalt producers, including Glencore (OTC:GLNCY) and China Molybdenum (OTC:CMCLF). Top copper producer BHP Group (NYSE:BHP), which obtains cobalt from its nickel- and copper-refining activity, was by far the top holding in April 2022.
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4. Amplify Lithium & Battery Technology ETF
The Amplify Lithium & Battery Technology ETF also isn’t a direct investment in cobalt. However, the fund is more focused on battery technology, which is a key driver of cobalt demand. This small ETF ($196 million in assets) is made up of 87 stocks and charges an annual fee of 0.59%.
Amplify’s offering has a diverse list of stocks involved in the development of lithium-ion battery technology and manufacturing, as well as metal mining and production stocks that provide the raw materials used in making batteries. As of April 2022, cobalt stocks made up almost 9% of the fund’s investments.
Since cobalt is a byproduct of other mining activities, it’s difficult to directly invest in the element outside of specific mining stocks. Cobalt prices are also likely to be volatile as supply and demand changes from year to year. Investing in an ETF, along with other metal and base materials stocks, could be a top way to play this key ingredient in electric vehicles and batteries.
