Aeronautical applications
Road transportation
The energy sector accounts for around 75% of global greenhouse gas emissions (according to Our World in Data, 2020). This includes transportation as well as energy for domestic, commercial and industrial buildings. Electrification is replacing internal combustion engines not only in road transportation, but also small boats and aircrafts. Similarly, renewables are replacing fossil fuels for the provision of energy to buildings.
In both cases, energy storage makes decarbonisation possible, with batteries powering electric vehicles and helping store energy produced from wind and solar power. While this energy transition is becoming increasingly urgent, it will unfold over decades creating a potential long-term investment opportunity. Previously, investors considering the space had to select specific raw materials to gain exposure to future battery demand, but the value chain is now much broader:
WisdomTree has partnered with Wood Mackenzie to develop an equity strategy with exposure to innovations across the full battery technology value chain. We start with an initial universe of 300 companies globally which can be divided into 4 categories:
Recycling
Aeronautical applications
Aviation accounts for around 2% of all greenhouse gas emissions*. Most recently, Airbus has announced its plans to make a commercial aircraft fuelled by hydrogen by 2035**. Smaller battery powered drones are likely to become mainstream a lot sooner for applications like last-mile distribution and air taxis.
*According to Our World in Data (2020)
**Source: Airbus (2022)
A more
efficient grid
Prepare for take-off: how battery solutions are powering the future
Internet of Things (IoT)
The number of IoT connected devices worldwide rose from 8.6bn in 2019 to 11.3bn in 2021 and will likely reach 29.4bn by 2030*. To make devices smaller and safer, chip-sized solid-state batteries are likely to complement lithium-ion batteries to power the IoT ecosystem.
*According to Statista in cooperation with Transforma Insights May 2022
Internet of Things
Raw materials
Manufacturing
Companies that process materials and build components such as anodes, cathodes, cells and packs.
Raw materials
A more efficient grid
Private vehicles tend to spend 90-95% of their lives parked*. In the future, electric vehicles (EVs) will be thought of as batteries on wheels. They could return surplus energy to the grid, easing the burden on the grid and making the economics of owning an EV more favourable. Intelligent systems will help make this ‘vehicle-to-grid’ technology work.
*Source: EON (2022)
Wood Mackenzie (WM)
Wood Mackenzie (WM) is a global leader in commercial intelligence for the natural resources sector. Their research and consulting expertise includes Upstream, Downstream, Chemicals, Gas, Power & Renewables, Metals & Mining and Corporate analysis. WM’s dedicated oil, gas, power, chemicals, metals and mining sector teams are located around the world and deliver research and consulting projects based on WM’s assessment and valuation of thousands of individual assets, companies and economic indicators such as market supply, demand and price trends.
Over the last 45 years, Wood Mackenzie has evolved naturally along the energy value chain to capture all the key components affecting global markets. Their integrated approach allows them to spot trends and forecast future dynamics before anyone else.
Raw materials
Companies that focus on raw materials mining (like lithium and nickel) or extract chemicals (like lithium carbonate or cobalt) that are used in manufacturing batteries.
Emerging technology
Companies that are innovating through cutting-edge technology like hydrogen fuel cells, wireless charging, solid state batteries, battery swapping and vehicle to grid applications.
Enablers
Companies that develop the building blocks for the battery value chain with things like recycling, charging infrastructure and grid services.
These 4 categories are further partitioned into 37 sub-sectors, with each sub-sector receiving a score from Wood Mackenzie based on its size, exposure and growth.
Selection
Each company then receives:
Intensity Rating
Composite Risk Score
Companies that do not fall within the bottom 20% of the Intensity Rating are selected for inclusion. Companies that fall within the bottom 10% of the global equity universe based on the Composite Risk Score, will be removed from the selection.
Weighting
The target category weights for the strategy are initially equally weighted at 25% and are then tilted towards higher scored sub-sectors.
Each company within the category is weighted based on the Intensity Rating and adjusted by the number of companies from the same sub-sector. In general, companies with higher Intensity Ratings are more heavily weighted. Rebalancing is done semi-annually, in May and November of each year. The strategy must have a minimum of 75 stocks.
Learn more
The energy transition depends on industrial metals like copper, lithium, nickel, aluminium etc. Supplying enough metal to limit temperature increases to 2 degrees Celsius above pre-industrialised levels will require circa $0.7tn in new mining capital expenditure by 2035*.
* According to Wood Mackenzie forecasts (2022)
Road transportation
Electric vehicles (EVs) are expected to be the biggest growth driver for battery demand in the coming years. By 2040, electric vehicles could account for over 70% of all vehicle sales worldwide*.
*Includes battery, hybrid and plug-in hybrid electric vehicles. According to Wood Mackenzie forecasts (2022)
Recycling
The sustainable growth of electric vehicles and renewable energy is only possible if it is supported by recycling. The global lithium-ion battery recycling market is expected to grow at a compound annual growth rate of 19.6% between 2021 and 2030*.
* According to forecasts from Markets and Markets (2021)
Intensity Rating
Each company receives an Intensity Rating based on its revenue exposure to each sub-sector and sub-sectors’ respective scores.
Composite Risk Score
Each company also receives a Composite Risk Score based on quality and momentum factors computed by WisdomTree.
Companies and countries alike have pledged to reduce carbon emissions and electrify energy systems. This will require great investment, and battery technology will play a fundamental role in the global energy transition.
IMPORTANT INFORMATION
Marketing communications issued in the European Economic Area (“EEA”): This document has been issued and approved by WisdomTree Ireland Limited, which is authorised and regulated by the Central Bank of Ireland.
Marketing communications issued in jurisdictions outside of the EEA: This document has been issued and approved by WisdomTree UK Limited, which is authorised and regulated by the United Kingdom Financial Conduct Authority.
WisdomTree Ireland Limited and WisdomTree UK Limited are each referred to as “WisdomTree” (as applicable). Our Conflicts of Interest Policy and Inventory are available on request.
For professional clients only. Past performance is not a reliable indicator of future performance. Any historical performance included in this document may be based on back testing. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. The value of any investment may be affected by exchange rate movements. Any decision to invest should be based on the information contained in the appropriate prospectus and after seeking independent investment, tax and legal advice. These products may not be available in your market or suitable for you. The content of this document does not constitute investment advice nor an offer for sale nor a solicitation of an offer to buy any product or make any investment.
An investment in exchange-traded products (“ETPs”) is dependent on the performance of the underlying index, less costs, but it is not expected to match that performance precisely. ETPs involve numerous risks including among others, general market risks relating to the relevant underlying index, credit risks on the provider of index swaps utilised in the ETP, exchange rate risks, interest rate risks, inflationary risks, liquidity risks and legal and regulatory risks.
The information contained in this document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof, where none of the issuers or their products are authorised or registered for distribution and where no prospectus of any of the issuers has been filed with any securities commission or regulatory authority. No document or information in this document should be taken, transmitted or distributed (directly or indirectly) into the United States. None of the issuers, nor any securities issued by them, have been or will be registered under the United States Securities Act of 1933 or the Investment Company Act of 1940 or qualified under any applicable state securities statutes.
This document may contain independent market commentary prepared by WisdomTree based on publicly available information. Although WisdomTree endeavours to ensure the accuracy of the content in this document, WisdomTree does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this document make no warranties or representation of any kind relating to such data. Where WisdomTree has expressed its own opinions related to product or market activity, these views may change. Neither WisdomTree, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.
This document may contain forward looking statements including statements regarding our belief or current expectations with regards to the performance of certain assets classes and/or sectors. Forward looking statements are subject to certain risks, uncertainties and assumptions. There can be no assurance that such statements will be accurate and actual results could differ materially from those anticipated in such statements. WisdomTree strongly recommends that you do not place undue reliance on these forward-looking statements.
IMPORTANT INFORMATION
Marketing communications issued in the European Economic Area (“EEA”): This document has been issued and approved by WisdomTree Ireland Limited, which is authorised and regulated by the Central Bank of Ireland.
Marketing communications issued in jurisdictions outside of the EEA: This document has been issued and approved by WisdomTree UK Limited, which is authorised and regulated by the United Kingdom Financial Conduct Authority.
WisdomTree Ireland Limited and WisdomTree UK Limited are each referred to as “WisdomTree” (as applicable). Our Conflicts of Interest Policy and Inventory are available on request.
For professional clients only. Past performance is not a reliable indicator of future performance. Any historical performance included in this document may be based on back testing. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. The value of any investment may be affected by exchange rate movements. Any decision to invest should be based on the information contained in the appropriate prospectus and after seeking independent investment, tax and legal advice. These products may not be available in your market or suitable for you. The content of this document does not constitute investment advice nor an offer for sale nor a solicitation of an offer to buy any product or make any investment.
An investment in exchange-traded products (“ETPs”) is dependent on the performance of the underlying index, less costs, but it is not expected to match that performance precisely. ETPs involve numerous risks including among others, general market risks relating to the relevant underlying index, credit risks on the provider of index swaps utilised in the ETP, exchange rate risks, interest rate risks, inflationary risks, liquidity risks and legal and regulatory risks.
The information contained in this document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof, where none of the issuers or their products are authorised or registered for distribution and where no prospectus of any of the issuers has been filed with any securities commission or regulatory authority. No document or information in this document should be taken, transmitted or distributed (directly or indirectly) into the United States. None of the issuers, nor any securities issued by them, have been or will be registered under the United States Securities Act of 1933 or the Investment Company Act of 1940 or qualified under any applicable state securities statutes.
This document may contain independent market commentary prepared by WisdomTree based on publicly available information. Although WisdomTree endeavours to ensure the accuracy of the content in this document, WisdomTree does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this document make no warranties or representation of any kind relating to such data. Where WisdomTree has expressed its own opinions related to product or market activity, these views may change. Neither WisdomTree, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.
This document may contain forward looking statements including statements regarding our belief or current expectations with regards to the performance of certain assets classes and/or sectors. Forward looking statements are subject to certain risks, uncertainties and assumptions. There can be no assurance that such statements will be accurate and actual results could differ materially from those anticipated in such statements. WisdomTree strongly recommends that you do not place undue reliance on these forward-looking statements.