A batteries ETF rocks onto the ASX

ETF Securities is launching the ETFS Battery Tech and Lithium ETF (ACDC) on the ASX, offering exposure to new battery technologies and certain lithium mining stocks.

Tracking the Solactive Battery Value-Chain Index, this thematic exchange-traded fund has exposure to a range of well-known international electronics stocks in this space including Sony, Samsung, Toshiba and EnerSys, carmakers such as Tesla and BMW, and lithium miners including Australia's Orocobre.

Editor Tony Kaye spoke to ETF Securities Australia's head Kris Walesby to find out more about ACDC, the ETF.

Listen to our postcast, or read the full interview below.

Tony Kaye: Hello. I'm with Kris Walesby from ETF Securities today. Hi Kris.

Kris Walesby: Hi Tony, how's it going?

Tony Kaye: Yeah, good. Kris, I wanted to talk to you about this new ETF product that you're launching. For one thing, the name of the ETF really got my attention. Let's go into that, and you can tell me a bit more about what this ETF is positioned to do.

Kris Walesby: Okay, yeah, so, we're launching on Monday, this Monday coming up, which is the 3rd of September. The battery tech and lithium ETF, and to your point about the name, we've given it the ticker ACDC, which I think is pretty memorable and liked by a lot of our investors already.

Tony Kaye: Certainly has a lot of memories for me.

Kris Walesby: Yeah, yeah I bet. Yeah, what we're trying to do, I guess a wider perspective, one of the five categories that we're trying to build out within ETF Securities’ range is the Future Present Range, and that's really around the structure Tony. Right now we have technology in it, so we have a global technology ETF, which is really about sort of present disruptors, the ones that we know about: Facebook, Google, etc.

Then last year we launched the Robotics, Automation and Artificial Intelligence ETF, which is actually the fastest growing thematic ETF Australia has had for some time in terms of asset gathering. That was around, as the name signifies, investors being able get exposure to robots, automation, and artificial intelligence, which many believe is the third revolution, in terms of how humans are materially changing their lives, with the first being the agricultural revolution and the second being the industrial revolution.

ACDC, the battery tech in this ETF, is within the same category where we believe the batteries, batteries have been around for a long time as you know, Tony, but the battery technologies right now, with lithium being the dominant one but not the only one, really changing the way with we're about to live our lives, and to a certain extent, already is. Lithium is prevalent in most of our mobile phones as the main battery power source, energy storing source.

Also I guess one of the main demand areas that clients are looking at, investors are looking at, is around electric vehicles. We've already, many people know about Tesla, but really there's a whole trend, or a whole fresh effort around lithium being used in electric vehicles, grids, and a number of different applications, but with electric vehicles being the main one. If you can imagine a world in 20 years where combustion engine cars are probably only 50% of cars, and there's probably a lot of regulation in Australia at that point – by the way, I'm speculating here, but I think I'm probably gonna be right – there'll be a lot of regulation in developed worlds to not produce any more combustion-based cars, so that electric vehicles need to be the new cars bought by people.

You're gonna see an absolute change in the way that we as people live, even down to things that you don't think about. Electric vehicles are basically very, very silent. All the noise we hear on the street will be, not completely disappeared, you'll still hear tyre noises, but you won't hear engine noises like we do now. That's just one of the effects. It really is about, it's also about the green or the new energy side of things. The batteries are becoming more and more clean, so with the advent of combustion engines, you'll also see a lot less pollution coming from the automobile industry.

We tried to capture that with this ETF, but we're not just trying to come straight on the technologies or just on the producers of battery technologies or lithium. What we actually are doing is we're tracking an index that is actually called the Battery Value Chain. That's really crucial, Tony, because what we're trying to do is make sure that we're not just fixed on one particular technology right now, the dominant one which is lithium, but this fund allows any investors that are buying into this fund to capture other technologies that already exist right now, like acid batteries, cobalt batteries, things like the Duracell batteries that we see out there right now already, but also future batteries that may not be lithium.

The main technology that people are looking at right now is actually the ability to create high levels of energy storage, much, much, higher than lithium, through hydrogen.

Tony Kaye: Yeah, can I just interrupt you, Kris?

Kris Walesby: Of course, of course.

Tony Kaye: Yeah, so the Solactive Battery Value-Chain Index, as you refer to, that tracks the performance of a basket of stocks of companies that are providers of energy storage technology. So we're talking about, you know, the manufacturers, right down to the miners, I understand as well, the miners of lithium and cobalt and other types of materials used in batteries.

Just having a look into the components of that index, the biggest weightings are in companies such as Sony, Samsung, Toshiba, Sumitomo Electric is another one that people would know, ABB, EnerSys, Johnson Controls. They're all big offshore enterprises; Tesla as you mentioned right at the start. It has a decent weighting in that index. How many stocks are actually in that index in entirety? Have you got a number on that?

Kris Walesby: Yep, 28. Right now there's 24, Tony, that are in technology, and there are many sub-sections of the technology, but they're in the technology category within batteries, and then there are four miners, of which the one that's most famous in Australia is Orocobre.

Tony Kaye: Yes, yeah, one of our biggest miners in that area. We've got quite a few, obviously. Lithium's not a scarce resource, mind you. Australia's obviously a big producer of lithium, or a big miner of lithium, but there's other countries in the world who've also got big lithium resources. But it seems to me that the weighting in this index is more focused on the, you know, the big companies, the big electronics companies, really, and the makers of those batteries.

Kris Walesby: Yeah, so that's, in terms of the split between the lithium miners and the battery technologies, you're absolutely right. It's the 77.5 per cent weighting, really, to the technologies, and only 12.5 per cent towards the miners. Actually that's probably a good thing, because what we didn't want to do is produce a funds that was just about lithium mining, or even wider, battery mining exclusively, because commodities, and some of your listeners probably know this, but commodities fluctuate massively, depending on cycles, depending on certain things like, you know, supply constraints, etc, etc.

To your point, lithium is not scarce. The actual expectation is that over the next five to 10 years that the lithium price will slowly trend down. There may be periods where it goes up, may be periods where it goes down, but slowly trend down. Because there is no scarcity of it, but what the expectation is that with lithium going down, it's actually potentially a boon for this fund, because the weighting is so much toward the technologies that use lithium, that if the input of lithium is declining, it means that the overall offering that these companies can give should therefore be able to be reduced on behalf of the users of the technology.

Tony Kaye: Now, this is a factor-based by fund, obviously, in the sense that it's investing in a particular thematic. You know, we've got a lot of those types of ETFs, not just in the Australian market, but internationally, of course. Is this an actively managed fund?

Kris Walesby: No, it's not actively managed. There are two components to it Tony. So, what we've done with this, well, what Solactive have done, and why we believe that this is a good index, is they've sourced two areas of research, which are considered to be the top, sort of the gospels for either battery technology or identifying lithium miners. On the one hand of battery technology, the Department of Energy has a global energy database, which is free for anyone to use.

What we do is we take any of the companies within that global database that are involved in global storage battery projects, any of those companies that are in that database, we include. All 24 of those 28 companies that you talked about before, Tesla, EnerSys, General Electric, BMW, they're all in there because they're captured by that database.

Then on the other side, there's the Metal Research Bulletin database, which is considered to be the premier database for metals research. In there, there's an identification process to look at very, very focused lithium miners, so miners that are predominantly focused on lithium, of which Orocobre is one of them.

Tony Kaye: Okay. Well, this is an exciting product to come to the market. Is there anything that Australian investors would need to do separately, like would they need to fill in any special forms, or can they just really buy this product on the market as a normal share?

Kris Walesby: Yeah, exactly. The answer is it is exactly like buying shares. There's no W-8BEN forms, there's no particular identification forms. I guess that's the beauty of an Australian domiciled ETF is that you don't need to change currency, you don't need to fill out any specific forms. If you've already got a platform connected to your SMSF or your standard trading account, you can put in the ticker, from Monday, you'll be able to put in the ticker ACDC, and you'll come up with a bit of a spread. Then you can just pay the offer price to buy this.

Tony Kaye: That's great, Kris. Well look, thanks very much for explaining it today. I'm really looking forward to seeing how ACDC hits the stage.

Kris Walesby: Great to speak to you, Tony. Thanks for your time.