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Posted on 25 June 2012.
A lithium Exchange Traded Fund (ETF), also known as a lithium ETF, is an investment in the developing new economy that is centered around the use of lithium batteries. Occasionally, macro changes in the economy and demand for natural resources causes demand for a specific resource, such as lithium metal, to increase rapidly. Investing in a lithium ETF offers investors an opportunity to take advantage of macro economic changes that are spurring demand for battery products that use lithium.
The reason why demand for lithium is surging and why a lithium ETF investment has the potential to make gains is the increasing demand for long lasting lithium batteries that are used in laptop and notebook computers, smart phones, and other mobile devices, such as hand held games. Lithium batteries are also being increasingly deployed to provide power for the growing number of hybrid and electric cars, which is further bolstering demand for lithium.
The Global X Lithium ETF (LIT) is a lithium ETF that can be brought by the public to invest in lithium. The price of the lithium ETF LIT corresponds generally to the price and yield performance, before fees and expenses, of the Solactive Global Lithium Index, which is a benchmark index comprised of companies that generate some or all of their revenue from lithium. The lithium ETF LIT invests in both lithium producers (miners) and lithium-ion battery makers to provide broad exposure to the lithium business segment, from raw materials mining to end use applications.
The potential financial rewards associated with investing in a lithium ETF is a result of the growing demand for lithium battery products, as consumers in industrialized economies buy products from smart phones to laptop and notebook computers to hybrid and electric vehicles that use long lasting lithium batteries. The demand for lithium batteries is expected to be so great as the new economy develops that demand for lithium batteries is projected to double within a decade.
Despite the projected growth in demand for lithium batteries over the next decade, investing in a lithium ETF does involve risks that lithium investors need to be aware of before investing. The primary risk associated with an investment in a lithium ETF is the possibility that technological and economic changes in the field of advanced batteries result in a new generation of batteries that are non-lithium based. A wide-scale move to a non-lithium based battery technology will decrease demand for lithium and would cause the holdings of a lithium ETF to plummet in value, causing the lithium ETF to lose a great amount of its value. To protect oneself from unforeseen technological changes in the battery space, an investment in a lithium ETF should only be a small part of any investor’s portfolio.
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