Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, and how you built the ETF?
The WisdomTree Battery Solutions strategy was designed to capitalise on the immense potential growth that we see in the adoption of electric vehicles and energy storage more broadly. If, by 2040, 6 out of 10 (roughly) new vehicles globally are electric vehicles, there will need to be many more batteries and much more investment made in the space. We sought to create a ‘value-chain’ approach, recognising that companies in the raw materials and manufacturing spaces would be poised to benefit. We also saw that, while lithium-ion batteries have been around commercially for roughly 30 years, lithium-ion technology may not be the only main technology in batteries for the next 30 years. Emerging technologies, like hydrogen fuel cells, may have a role to play. It’s also the case that there would be certain ‘enabling technologies’, for example recycling, that become more important as more and more batteries are manufactured and used.
The single most important detail to WisdomTree’s approach is the partnership with Wood Mackenzie, an expert across the value chain of different energy storage solutions. Wood Mackenzie is able to study the trends impacting energy storage broadly and study the business lines at each underlying company. The resulting basket of stocks will tend to have exposure across the full value chain and there will be a detailed rationale underlying the inclusion of any constituent company. We also made sure that the strategy had the flexibility to invest directly in locally listed Chinese companies, since energy storage is a big focus of China’s economy. Not every thematic strategy takes this operational step. An expert partner, plus diversification across the energy storage value chain, plus geographic diversification creates an interesting foundation for the approach.
How is the ETF positioned for long-term growth?
“The megatrend around energy storage solutions will evolve as the years go by. While electric vehicle batteries are very tangible and easily tracked and reported, they are not the only important solutions in this space. Grid-scale energy storage will be important for the long-term, as the world seeks to capture intermittent energy delivery systems, like solar and wind power. It’s also the case that, while lithium-ion batteries are the primary technology today, the future may hold something different. Maybe developments in solid state batteries come through and are able to be more commercialised. Maybe hydrogen fuel cells generate stronger overall adoption. Recycling will be another area that will have to grow, as you think of the fact that as more new cars are sold, more older cars will go through their usable lives and those raw materials will need to be re-used. The long-term strength of the strategy rests in its diversification, focused on energy storage solutions quite broadly.”
Can you identify a couple of key investment opportunities for your ETF? This could be at a stock, sector or thematic level.
“Across the underlying investment categories of Raw Materials, Manufacturing, Emerging Technology and Enablers there are more than 30 distinct ‘sub-sectors.’ Sticking to a true long-term focus is challenging because of the excitement that can ebb and flow in some of these areas. People might recall around the turn of 2020 into 2021 where clean energy was in such a focus and state of euphoria that the returns of certain solid state-focused and hydrogen fuel cell-focused companies had been unbelievable—well into the 100’s of percentage points in short periods prior to January 2021. Of course, a correction followed, but in our view, this speaks to the value of the diversified nature of the approach. There is some exposure to many distinct ‘sub-sectors’. At a given time, some may generate strong returns, and some will not, but the critical theme to remember is that the world is trying to lower its net carbon emissions and pay attention to climate change. For that to work, it would be difficult to embark on that journey without any of these sub sectors doing well along the way. For the long run, do not forget about things like grid infrastructure and recycling, because as the trend grows they only increase in importance.”
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