With the United States becoming less involved in NATO affairs, it’s forcing European nations to become more reliant in bolstering their defensive capabilities. This leads to increased defense spending, which could drive up demand for critical minerals.
“With deglobalization weakening economic ties and the U.S. retreating from past military commitments, global defense spending has been rising sharply as geopolitical tensions intensify and strategic alliances recalibrate across regions,” said Sprott Asset Management market strategist Paul Wong in a Sprott Critical Minerals Report. “While global military spending estimates vary, 2024 saw global spending around $2.7 trillion, with forecasts of $6.38 trillion by 2035 (an 8% CAGR).”
Wong’s report further highlighted the need for specialty metals in advanced military hardware such as fighter jets and stealth systems. And it’s not just in defense applications where these metals are crucial components, but also in alternative energy infrastructure such as wind turbines and electric vehicles (EVs).
The increased demand translates into potential supply constraints for metals like lithium, copper, rare earths, and other critical minerals. This should provide long-term growth drivers that create opportunities in critical minerals ETFs.
As Wong indicated, the chart above does not include drones, which are increasingly more prevalent in the battlefield.
“Drones require rare earths for motors, communications, optics, navigation and targeting systems,” Wong said. “Battery materials like lithium, cobalt, nickel and graphite are required to run drone power systems. Future drone development points toward AI-driven autonomous drones, which will require a further increase in advanced semiconductor use and all accompanying systems.”
With defense spending set to rise, this could create a growth opportunity for the Sprott Critical Materials ETF (SETM). The fund tracks the Nasdaq Sprott Critical Materials Index,which includes global constituents positioned to capture growth in the energy transition materials industry.
The fund offers deep diversification in its holdings with close to 90 holdings as of September 16. Holdings include mining companies that are necessary for the production of uranium, lithium, copper, nickel, silver, manganese, cobalt, graphite, and other rare earth elements.
Its diversification is also apparent in its global exposure. Holdings include companies domiciled in Canada, the United States, Australia, and Chile, among others. Additionally, there’s also diversification in market capitalization. SETM disperses its assets among large-, mid-, and small-cap companies for blended market-cap exposure.
For more news, information, and analysis, visit the Gold/Silver/Critical Minerals Content Hub.
An investor should consider the investment objectives, risks, charges, and expenses carefully before investing. To obtain a Prospectus, which contains this and other information, contact your financial professional or call 888.622.1813. Read the Prospectus carefully before investing, which can also be found by clicking one of the links below.
Past performance is no guarantee of future results. One cannot invest directly in an index.
Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of investment losses. ETFs are considered to have continuous liquidity because they allow an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fund’s performance.
Sprott Asset Management USA, Inc. is the Investment Adviser to the ETFs. ALPS Distributors, Inc. is the Distributor for the ETFs and is a registered broker-dealer and FINRA Member. ALPS Distributors, Inc. is not affiliated with Sprott Asset Management USA, Inc. or VettaFi.
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.
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