As trading volumes of both lithium and cobalt have picked up, there is now sufficient volume to introduce these two materials into WisdomTree Energy Transition Metals (WENT) and WisdomTree Battery Metals (WATT) due to their fit with the respective strategies. WENT and WATT are two synthetic exchange-traded products launched in April 2022.
The products and indices that they track have always been designed by WisdomTree to be adaptive to market conditions: to introduce materials important to the theme when a liquid futures market develops and change weights according to the fundamental outlooks for these metals.
However, the volumes traded remain low in comparison to other metals (see Figure 1). Therefore, the indices’ methodologies constrain the weights assigned to these two materials; currently, the respective indices have target weights at rebalances for lithium and cobalt of 2.5% and 0.5% respectively.
As a result of the inclusion of the metals in the strategy for these investment products, we believe that this will lead to enhanced liquidity and price discovery in the wider market.
|Assets||Open Interest x Contract Value (US$)||Volume x Contract Value (US$)|
Source: WisdomTree, Bloomberg, 31/03/2023. Aggregate volumes and open interest across the futures curve (i.e. not a single maturity). Historical performance is not an indication of future performance and any investments may go down in value.
Before fees and expenses, WENT seeks to track the performance of the WisdomTree Energy Transition Metals Commodity Index TR, while WATT seeks to track the performance of the WisdomTree Battery Metals Commodity Index TR. WisdomTree has developed index strategies with the holdings and weightings of the two baskets designed to capture the demand and growth of specific metals involved in energy transition technologies under the 1.5-degree scenario. Wood Mackenzie, a leading energy transition research and consulting firm, provides WisdomTree with forecasts for the demand for energy transition and battery materials for the coming 3 years under the 1.5-degree scenario, which are used to determine the weights.
The WisdomTree Energy Transition Metals exchange-traded commodity (ETC) allows investors to access the key metals involved in the energy transition megatrend including electric vehicles, transmission, charging, energy storage, solar, wind, and hydrogen power production. The index was comprised of copper, nickel, aluminium, silver, zinc tin, platinum, and now also lithium and cobalt.
The WisdomTree Battery Metals ETC allows investors to access the key metals involved in the battery theme, a sub-set of the energy transition megatrend. The index was comprised of nickel, aluminium, copper, and zinc and now also lithium and cobalt.
The indices are reconstituted on an annual basis in January and with a quarterly review process to assess if additional commodity metals can be added or if target weights can be increased, depending on the inclusion criteria such as liquidity.
With the addition of these new materials, the new target weights are as follows:
|WisdomTree Energy Transition Metals (WENT)||%|
|WisdomTree Battery Metals (WATT)||%|
Source: WisdomTree, Weights effective as of 17 April 2023.