Sprott Asset Management has debuted a new thematic equity ETF in Europe providing exposure to mining companies specializing in the metals and minerals that are critical to the clean energy transition.

John Ciampaglia, CEO of Sprott Asset Management.

Launched in partnership with white-label ETF platform HANetf, the Sprott Energy Transition Materials UCITS ETF has been listed on London Stock Exchange in US dollars (SETM LN) and pound sterling (SETP LN) as well as on Xetra (M7ES GY) and Borsa Italiana in euros (SETM IM).

According to Sprott, the mining companies underlying the ETF are expected to see surging demand for their minerals, driven by governments worldwide introducing mandates that require sharp reductions in carbon emissions. Contrasting this growth in structural demand is the inherent limited supply of these minerals and the challenges of bringing them to market, leading to rising commodity prices which upstream mining companies should be well-positioned to benefit from.

John Ciampaglia, CEO of Sprott Asset Management, commented: “2022 was a global wake-up call regarding the importance of energy transition and security. Certain critical minerals serve as raw materials that are required to meet the growing need for low-carbon energy, increased electrification, and the transition to electric vehicles. Due to years of underinvestment, demand for many energy transition materials now outstrips supply. We believe mining companies focused on energy transition minerals are well positioned to benefit from the significant investments that will be required over the coming decades.”

Hector McNeil, Founder and co-CEO of HANetf, added: “The clean energy revolution means we are moving from a carbon-intensive economy to a metals-intensive one. Whether it’s for solar panels or the batteries that power electric cars, a decarbonized world means more demand for critical materials. This presents a potential investment opportunity.”

Methodology

The fund is linked to the Nasdaq Sprott Energy Transition Materials Ex-Uranium Index which covers companies that derive at least 50% of their revenue or assets from the mining, exploration, development, production, recycling, refining, or smelting of energy transition minerals. Eligible firms must have a market capitalization in excess of $100m.

Minerals that currently meet the definition to be aligned with the energy transition theme include rare earths and silver (which are important in the generation of clean energy), copper (used extensively in the transmission of clean energy), and lithium, nickel, manganese, cobalt, and graphite (which are relied upon within clean energy storage technologies).

The index also includes a light ESG screen that removes violators of UN Global Compact principles, companies embroiled in severe ESG-related controversies, and firms with business operations linked to controversial weapons, oil & gas, oil sands, thermal coal, or pesticides.

Chosen constituents are weighted using a combination of float-adjusted market capitalization and their ‘intensity score’ which reflects the proportion of the company’s business that is dedicated to energy transition minerals. A single stock cap of 4.75% and a group commodity cap of 25% are applied.

The index, which is reconstituted and rebalanced semi-annually in June and December, currently has 77 constituents with the most notable positions being Arafura Resources (6.8%), Nickel Industries (5.2%), Freeport-McMoRan (5.1%), MP Materials (4.7%), and Vale Indonesia (4.5%).

Stocks listed in Australia accounted for a third (35.1%) of the total weight with the next-largest country exposures being Canada (13.4%), the US (13.3%), Indonesia (9.7%), and Chile (9.6%).

The ETF comes with an expense ratio of 0.75% and is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).

The fund represents Sprott’s second Europe-listed ETF following the May 2022 launch of the Sprott Uranium Miners UCITS ETF (URNM). URNM, which targets companies in the uranium mining industry, recently surpassed $55 million in assets under management. Its expense ratio is 0.85%.

McNeil added: “We’ve seen strong success with our Sprott Uranium Miners UCITS ETF owing to its pure-play exposure and the recognition of Sprott’s expertise in this space. We expect the same from SETM. The success of URNM and follow-on with SETM proves that global issuers can use HANetf’s platform to launch in Europe in a timely and cost-efficient manner.”