Battery thematic ETFs power ahead in 2020

While all eyes are on Tesla’s S&P 500 debut, investors who backed battery theme ETFs in 2020 have seen strong returns.

Battery-focused thematic ETFs excelled in 2020, with the L&G Battery Value-Chain ETF (LSE: BATT) returning just over 66% from 1 January to 18 December (total return in sterling terms), according to FE Analytics. Close behind was the WisdomTree Battery Solutions ETF (LSE:VOLT), with returns of just over 60%.

The performance of both ETFs was way above any major market benchmark and better than most other thematic ETFs.

According to Nitesh Shah, director of research at WisdomTree: “A radical energy transition is under way, driven by a combination of environmental, policy and technology factors.”

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In particular, says Shah, efforts to pivot towards electric car use have increased this year, despite initial fears that Covid-19 would derail such efforts. He notes that electric vehicle sales have risen strongly in the third quarter of 2020. At the same time “a number of large countries/regions including Japan, South Korea, China, the United States and the European Union have set their sights on carbon neutrality around the middle of this century”.

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According to Aanand Venkatramanan, head of ETF investment strategies at Legal & General Investment Management, the performance of the L&G Battery Value-Chain ETF “stems from our focus on companies that own, rather than merely use, a proven battery technology, as we expect this segment to benefit the most from a wider adoption and usage of batteries”.

The most obvious example of this is Tesla (NASDAQ:TSLA), a company which is now almost synonymous with the rise of electric cars, which has risen by more than 600% this year. Another notable car company in the ETF’s portfolio has been the Chinese electric car marker BYD (SEHK:1211), which has seen its share price go up by around 400%.

The ETF’s exposure to some lithium miners has also powered performance. Venkatramanan notes: “As the fund captures the entire value chain of battery technology, it also benefited from demand increases in the resource market with prices of securities of pure battery grade lithium producers  such as Livent Corp (NYSE:LTHM) or Galaxy Resources (ASX:GXY) soaring.” Both companies have seen their share price rise by roughly 100% this year.

The ETF is equally weighted, meaning it periodically rebalances to ensure each of its 31 constituents represent the same percentage of the portfolio. It uses the Solactive Battery Value-Chain Index.

The WisdomTree ETF has a slightly larger portfolio, with 93 companies held. The ETF tracks its own, in-house WisdomTree Battery Solutions Index, which was developed with input from Wood Mackenzie, a research consultancy specialising in energy and metals.

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Like the L&G ETF, the WisdomTree ETF holds equities from across the “battery value chain”. As Shah notes, the portfolio includes companies “ranging from the miners that produce the raw materials for batteries [and] the manufacturers of batteries, to the auxiliary industries needed to support a renewables and battery ecosystem, including recycling and charging infrastructure”.

In terms of standout performers in the ETF, Shah points to Plug Power (NASDAQ:PLUG), an American firm that develops hydrogen fuel cells. Since the start of the year, its share price has increased by more than 800%. Another star performer was the Chinese company Amperex Technology, the world’s largest battery manufacturer. Its share price rose by 200% this year.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.