Make Money in Rare Earth Stocks -- the Easy Way
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect companies focused on the rare-earth and strategic metals that are used in industry to prosper as the global economy picks up, the Market Vectors Rare Earth/Strategic Metals ETF (NYS: REMX) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The rare-earth ETF's expense ratio -- its annual fee -- is a relatively low 0.57%.
This ETF doesn't have much of a performance yet, as it's just a few years old. It badly lagged the S&P 500 last year and is well ahead of it so far this year. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
What's in it?
Relatively few rare-earth and strategic metals companies had strong performances over the past year, as the global economy has put pressure on the industry. Newmont Mining (NYS: NEM) gained 11%, though, and many of those who expect demand for gold to keep growing remain bullish on it. But many investors, including Warren Buffett, don't see great long-term value in gold.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Molycorp (NYS: MCP) , down 49%, is positioned to profit as it boosts its production considerably. China's production declines have pushed prices up, and Molycorp can profit from that, but if an oversupply occurs as competitors also boost production, then all may suffer. General Moly (ASE: GMO) , meanwhile, down 31%, has some factors working against its near-term prospects. Several mines aren't expected to be fruitful for several years, and it has at least one deal in place that locks in low prices.
Titanium Metals (NYS: TIE) , down 19%, has bulls expecting big titanium demand from the likes of Boeing, as the plane manufacturing process requires a lot. (Note that Boeing's 787 Dreamliner has finally debuted.) And while shareholders wait, they can collect a 2% dividend.
The big picture
Demand for critical metals isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
At the time this article was published LongtimeFool contributorSelena Maranjian,whom you canfollow on Twitter here, holds no position in any company mentioned.Click hereto see her holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Titanium Metals. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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