Interesting ETF – Global X Lithium

For the ones that have been following my posts, you know that I have been struggling with how to express my theme of the EV future. I touched upon this dilemma in numerous post and mainly in this one: Investments in EV Value Chain. Today when I reviewed the largest shareholders in the battery producer Coslight Technology, which I’m invested in, something interesting popped up – an ETF called Global X Lithium was a shareholder. I went ahead and looked at what this ETF actually holds in it’s portfolio, and I was surprised to see how close the holdings resembled the list of stocks that I have under watch and try to follow, regarding news-flow etc. This could definitely be a catch all ETF for you readers to buy, who don’t have access to, or do not bother to buy stocks in markets around the world like I do. I won’t invest in an ETF for this blog, but it’s still worth exploring the ETF.

Solactive Global Lithium Index

The ETF tries to replicate the Solactive Global Lithium Index, in the index description one can read: “The Solactive Global Lithium Index tracks the performance of the largest and most liquid listed companies active in exploration and/or mining of Lithium or the production of Lithium batteries. The index is calculated as a total return index in USD and adjusted semi-annually.”

Let’s take a look at how they built the index.

Constituents

The Index has 25 constituents and it’s interesting to see that I own(ed) several of them (BYD, Coslight and SAFT which I sold due to take-over). I also have Samsung SDI and LG Chem on my watchlist of potential stocks to invest with.

Name Weight %
FMC Corp 20.0
Sociedad Quimica y Minera de Chile SA 10.4
Orocobre Ltd 6.8
Albemarle Corp 6.3
Galaxy Resources Ltd 4.9
Saft Groupe SA 4.6
Johnson Controls Inc 4.1
BYD Co Ltd 4.0
Samsung SDI Co Ltd 4.0
Simplo Technology Co Ltd 3.9
Tesla Motors Inc 3.9
GS Yuasa Corp 3.8
Panasonic Corp 3.3
LG Chem Ltd 3.2
FDG Electric Vehicles Ltd 3.1
Dynapack International Technology Corp 2.9
Lithium Americas Corp 2.3
Advanced Lithium Electrochemistry Co Ltd 2.0
Vitzrocell Co Ltd 1.7
Changs Ascending Enterprise Co Ltd 1.2
COSLIGHT TECH 0.9
Blue Solutions 0.8
Bacanora Minerals Ltd 0.8
Ultralife Corp 0.7
China BAK Battery Inc 0.4

Weighting rules

I was a bit confused with why Tesla and BYD had so small weights in the Index, although they are huge companies MCAP wise, this was explained in the weighting rules:

“The Percentage Weight of an Index Component which is a Mining Company is capped at 20.00 percent, the Percentage Weight of an Index Component which is a Battery Company is capped at 4.75 percent on the Selection Days. The collective Percentage Weight of all Index Components with a Percentage Weight exceeding 4.75 percent is capped at 44.5 percent on the Selection Days. The excess weight is allocated proportionally to all Index Components whose Percentage Weight is not capped.”

The ETF is important

In my view this ETF can be important for a few reasons. One is as an indication of investor interest in the EV-Theme, by looking at how much Assets it attracts. Here is a historic graph over Assets Under Management and Price since it was launched:

ETF_AUM_Price

Without doing a too deep dive, I’m guessing the ETF was promoted at launch and thereafter interest has fallen as performance has not been good at all. A few other things can be noticed, starting around this spring the performance has turned around and interest (AUM) has at the same time spiked. Still in relative terms, this basket has massively underperformed most benchmarks around the world. The Index is down -41% since start of 2011 whereas S&P (without dividends) has returned 70%. This year, 2016, the Index has outperformed S&P with 16%. Could this be start of a turn-around and the long up-trend I believe we will see in the sector?

Possible buying squeeze

Another interesting factor is something seen in other ETFs that become “too popular”. Fairly small companies can belong to an ETF which gets massive inflows and the ETF providers are forced to buy stocks in the smaller company and thereby pushing the price significantly. This happened earlier with the Cyber Security ETF (HACK US) and affected the small Finish Anti-virus provider F-Secure.

Let’s calculate how much inflow is needed in the ETF to start pushing the price in my holding Coslight Technology. The fund holds a 0.9% position in Coslight. Looking at this years spike in AUM, the biggest inflow was on June 13 with 15.7 MUSD in one single day. This translates to 15.7*0.9%*7.75 = 1.1 MHKD, which is about 30% of an average daily volume, so not enough to move the stock price (the stock was actually down over the day). But this ETF is obviously not something famous (yet). So let’s play with the thought that the ETF gets the same type of exposure as the HACK ETF which grew from a few million AUM to over 1bn USD. It had an maximum inflow of 175 MUSD on one single day. Re-doing our calculus: 175*0.9%*7.75= 12.2 MHKD which is about 4x the average daily volume, obviously a somewhat unrealistic scenario, but you never know.

Conclusion

This ETF might be a good choice for a portfolio that believe in the Future of EV. Just remember that there is a possibility that EV becomes a reality, but competition is so fierce so no money is made by the companies in this space, something like the aero-industry, never put all eggs in one basket.

 

 

 

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Criteo – Lawsuit scares me – I’m out

Criteo the company I recently wrote an article about, has started a legal battle with the private competitor SteelHouse. So what is it all about? Well you can read it yourself in these two business insider articles: It started with Criteo and then SteelHouse came back with a counter.

The growth numbers Criteo have been pulling, are impressive indeed. But if it was one thing that was very hard for me to understand, it was the inner mechanics of how they generate their revenue. Since I don’t fully understand it, you might say I should not have invested in the first place. I guess I somehow was tempted of all that juice growth, in this case i never really considered any fraudulent behaviour.  And that might be my lesson, but here I am, not any longer comfortable with Criteo’s “black box” as SteelHouse calls it of revenue generation. One lessons I learned in the past is, if you are no longer sure of your thesis, then sell. You can always buy it back later. I sold my full holding as of today’s close.

Now I have way too much cash on my hand (17%), I need to find some new good investments.

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byd_logo

BYD – Electric bus and car maker

Introduction

BYD’s stands for Build Your Dreams and its products are probably not that well known to you, at least if you live in a western country. But it is infact a huge company with 200 000 employees and a MCAP of 20bn USD, listed both in Mainland China and on the Hong Kong Stock Exchange. Even Warren Buffet is a believer in the company and has held 9% stake in the company since 2008. It is believed that the famous Chinese investor Li Lu brought the company to Warren’s attention. Since then BYD stock price has been through several rollercoaster rides, mostly fueled by hopes of future growth in Electric Vehicle sales. The last two years has been exciting, since BYD has managed to grab considerable market share in sales of electrical buses. How well they can compete on the electric car stage is yet to be decided. I often read comments like, check out the Chinese Tesla – BYD, but that is not entirely accurate. First off I quote BYD Motors President Stella Li: ““We are in a different market than Tesla,” Li says. “Tesla is for rich people. We are for normal people.” But more than that, BYD is also a company with a much broader business set. I also recommend this Bloomberg article for all you Tesla fans out there: Take that Tesla

Business segments

BYD has three reportable operating segments as follows:

(more…)

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Sell Yuexiu Transport, buy CRRC

The company which collects toll fees at highway bridges in China and pays out a large share of the profits as dividends has been a long term holding in my private portfolio. But all good things come to an end. Time to sell Yuexiu Transport and Infrastructure it has been treading water for a while and the weak RMB risk to dissapoint investors at the next result update. I sell the full position as of todays close.

At the same time I enter a 3% position in the train and railway maker CRRC listed on the Hong Kong exchange. China has big plans for it railways but also to export their knowledge and sell trains and new railways around the world. Somewhat tricky owning a company which is so controlled by the Chinese government, but I believe this company will be a winner in the Chinese One Road One Belt strategic plan.

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Investing through Themes

Is Investing through Themes a sensible approach?

Most of my portfolio holdings are tied to a theme, with a few exceptions. The idea is to give me some tailwinds in my investments over the long-term. A risk is that you overpay for the tailwind, due to Mr market already pricing in a rosy future. When I evaluated other portfolio managers, we would say it’s extremely hard to call Macro events, a pure bottom-up stock picker has a better odds to create alpha. The problem for me is that this is a hobby, so I do not have the time, to sift through that many companies, to find the undervalued few gems. I need to think in bigger strokes and trying to exploit that I can see where the world is moving before the crowd does. I also see some edge in how long term I can hold the strategy and that I can express my views globally through big and especially small companies, that a fund manager can’t trade in. So let’s go through the Themes, I list the weight to the theme and the companies I invested in to ride the theme.

 

Virtual Reality (5%) – Sony

First up is a brand new theme in the Portfolio and therefore as of yesterday close, the portfolio has a new holding – Sony Corp bought at 5% weight. (Sorry I am a bit late to announce it). My bet is that VR products will be the Christmas gift of the year 2016. It’s not a hype, it’s real, and it will become mainstream very quick. Sony is well positioned to ride this trend.

Electric Vehicles (17%) – BYD, Coslight Technology, Highpower Int

I have talked a lot about Electric Vechicles, when I started my research about a year ago, it was not such a hype yet. Now a lot of junior Lithium miners with a potential mine up and running in 6 years have gone up 300% the last 6 months. Well the hype is here, I have struggled a bit how to express my view and belief that we will all be buying electric cars in 5 years (Getting it right). Currently I’m riding a shorter trend more geared towards China and how Chinese subsidies are helping my current holdings, which all are battery makers and BYD who also successfully sell electric buses around the world.

Modern Web-based Banks (11.7%) – Skandiabanken, Avanza Bank

I work in banking, I know what is happening, most us do and we are scared. Because we know a lot of the things we have been making money on for ages is going away – and it is going fast. It’s niche players as the companies I own that will be able to navigate this and come out as winners as Titans as Deutsche Bank and others fall helplessly. Or better yet, are bought by a Titan.

Growing Chinese Middle-class (29%) – NetEase, Ping An Insurance, Ctrip, Yuexiu Transport

So almost everyone that invest in China/Asia is bullish on the whole Chinese middle-class consumer play. It’s easy, 300-400 million new people enter the middle-class and they want all the products and services we westerners consume, so buy companies that produce what they consume? Yes and no. Yes because the underlying story still holds, No because the obvious ways to play it through regular consumer staples companies etc is too expensive, the multiples are really high. I found my ways to play it, which I think brings a nice risk-reward.

Strong Growth/Consumption in Nordics (12.4%) – Ramirent, MQ

The Nordic consumer is today rich, richer than ever before, for a few reasons. Unemployment is low, interest rates are negative, house prices are at top or close to top levels, equity market is OKish. All in all, there is spending power. So we will build and we will consume, I found two companies were one is a bit of turnaround and the other has found a strong CEO/leader.

Stock Specific (16.8%) – Criteo, Zhengtong Auto, Microsoft

This is a mix of Criteo being a high growth company, Zhengtong Auto being a deep value play and Microsoft being somewhere in between.

 

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