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ACDC gives ASX investors Battery tech and Lithium exposure

ETF Watch - Sep 03, 2018

In the last couple of years, there has been a proliferation of thematic ETFs launched in Australia, giving investors access to certain themes or niches previously not available to Australian investors. Earlier this year we listed the themes we’d like to see made available to local ETF investors. The good news is today one of those themes is now available, through ETFS Battery Tech & Lithium ETF (ACDC). ACDC provides investors with access to a range of Lithium miners (the key natural material used in batteries) and a range of companies investing in battery technology.

High Voltage: The ACDC Specifics

We love it when an issuer gives thought to an ETFs ASX ticker when launching it. With ‘ACDC’, ETF Securities have created a code that will not be easily forgotten. Reportedly a tribute to ETFS founder Graham Tuckwell’s love of the Aussie rock band, whose name was inspired by the two electrical currents, Alternate Current and Direct Current. Batteries store their energy through Direct Current and must convert it to Alternate Current when transferring their power to the grid. We can't think of a more apt ticker than ACDC!

ACDC tracks the Solactive Battery Value-Chain Index. According to ETF Securities, the index has returned 15% per annum over the last 5 years, a period where batteries have moved from powering laptops to powering cars and parts of the power grid. The index is equal weight, meaning it holds roughly similar weightings of each underlying holding in the portfolio (currently 28 holdings), with the highest weighting currently 4.69% and lowest weigthing 2.68%.

The fund holds a range of companies across the battery value chain, providing investors diversified exposure to this sector. This includes a number of Lithium miners, such as Australian miner Orecobre. It also holds a number of battery producers such as Samsung SDI, and industrial specialists such as Toshiba. No battery ETF would be complete without car and battery manufacturer Tesla, who it could be argued through visionary yet controversial CEO Elon Musk, have single handedly brought batteries into the mainstream, despite not yet turning a profit. Tesla makes up 3.67% of the portfolio.

Whilst lithium is currently the major raw material making up batteries, the fund includes exposure to other battery technology such as lead, nickel, sodium and zinc, and has a mandate to reassess their portfolio as other battery technologies such as hydrogen emerge over the longer term. 

ACDC is certainly not a pure play battery play. Batteries are just part of the operations for most of the companies that make up the portfolio. The index constituents are based on information provided by the US Department of Energy’s Global Energy Storage Database for determining companies who are energy storage technology providers and Metal Bulletin for determining mining companies who produce lithium. With names like Sony, Panasonic and Nissan making up the holdings, these are companies with diverse businesses in which batteries only make up a small part of their operations. As a result, investors must expect returns to not directly track growth in the battery sector, with most of the companies in the index likely to be influenced by other factors specific to their core industry.

From a country exposure perspective, ACDC holds 43% Japanese companies, 18% US, 12% Korea, 11% German and 16% other countries.

Hells Bells: How does ACDC compare to TECH and ROBO?

ACDC is part of ETF Securities ‘Future Present’ range of ETFs, which include their Technology (TECH) and Robotics & Automation (ROBO) ETFs. ACDC is the latest addition to a range of ETFs that aim to provide investors access to global megatrends, those trends that will help to shape society this century.

With all three of these ETFs having a strong focus on technology, one can expect some correlation in the performance each. ACDC shares three constituents with ROBO (Swiss company ABB, German company Siemens and Japanese Mitsubishi Electrics). It does not share any holdings with TECH. ACDC also has the lithium miner exposure which helps additionally differentiate it. It should be noted that the lithium miner exposure makes up a relatively small proportion of the fund, with four holdings in total. Whilst we expect the performance of all three ETFs to be somewhat correlated, we think there is enough differentiation for investors in TECH and ROBO to consider ACDC if this is a ‘megatrend’ they believe in.

It's a Long Way to the Top: What else is available in this space?

For Australian investors, ACDC is the only ETF available on the ASX that focuses on battery technology. A full list of the thematic ETFs available on the ASX can be found in our post on this topic, or by searching our fund database.

ACDC is available now, has total management costs of 0.72% per annum and plans to pay distributions annually.

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