Rare earth elements (REEs) and critical materials, despite their sometimes interchangeable use, represent two distinct investment opportunities. Understanding the nuances can help investors navigate the strategic shifts in 2026, which include geopolitical uncertainty.
Rare Earths or Critical Materials?
Rare earth elements are critical materials, but not all critical materials are rare earths. This presents a simplified way to discern between the two, but a closer look under the proverbial microscope reveals the differences.
Critical materials is a broad umbrella term, further defined by governmental policy measures. For example, the U.S. Department of the Interior (DOI) defines critical materials as those that are essential to economic or national security. Furthermore, critical materials can also be those with associated supply chains that are vulnerable to disruption. Under the DOI , this includes a wide array of materials, including lithium, cobalt, copper, and uranium.
On the other hand, rare earths represent a specific sub-category of critical materials. In particular, these 17 metallic elements are relatively abundant in the Earth’s crust, but rarely found in ample supply. Furthermore, they can be difficult to extract and refine. That said, achieving economical extraction is one of the primary hurdles in the rare earths industry.
“Rare earth elements (REEs) are critical to many strategic sectors of developed economies, including defense, high-tech industries and energy, making securing their supply chain a top national priority,” explained Jacob White, Sprott’s director of ETF product management, in a report: Rare Earths as a National Security Asset: Why Ex-China Supply Matters.
See More: Why Invest in Rare Earths? Consider These Three Use Cases
Two Unique Opportunities
For an investor, the choice between investing in critical materials or rare earths presents two unique ETF opportunities:
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Critical materials exposure with Sprott Critical Materials ETF (SETM): This ETF tracks the Nasdaq Sprott Critical Materials Index. It offers a diversified approach with exposure to companies that are well-positioned to benefit from the increased investment in the critical materials industry, including those involved in mining and/or exploration.
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Rare earths exposure with Sprott Rare Earths Ex-China ETF (REXC): This fund tracks the Nasdaq Sprott Rare Earths Ex-China Index, which offers investors a targeted way to capitalize on the de-risking of the global rare earths supply chain by avoiding companies domiciled in China.
The newly launched REXC offers a more concentrated, niche play. The fund essentially de-monopolizes China’s influence in the rare earths supply chain to mitigate geopolitically charged risk.
“As countries continue to re-focus their priorities amid shifting economies and ongoing geopolitical challenges, ex-China supply chains will be at the center of policy, capital and strategic objectives,” White said further in the Sprott report. “For investors, understanding the importance and value of rare earths means harnessing the future of global power, technology and security.”
See More: Reworking the Rare Earths Supply Chain With Sprott’s REXC
For more news, information, and analysis, visit the Gold/Silver/Critical Materials Content Hub.
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Exchange Traded Funds (ETFs): SETM, LITP, URNM, URN, COPP, COPJ, NIKL, SGDM, SGDJ, SLVR, GBUG, METL
Physical Bullion Funds:PHYS, PSLV, CEF, and SPPP.
Gold and precious metals are referred to with terms of art like store of value, safe haven and safe asset. These terms should not be construed to guarantee any form of investment safety. While “safe” assets like gold, Treasuries, money market funds and cash generally do not carry a high risk of loss relative to other asset classes, any asset may lose value, which may involve the complete loss of invested principal.
