As the world has begun to focus on new technology to aid in the global energy transition, electric vehicles (EV) are becoming more a part of everyday life. S&P Dow Jones Indices (S&P DJI) has collaborated with S&P Global Commodity Insights (SPGCI) to launch the S&P GSCI Electric Vehicle Metals, which seeks to track the metal commodities used in the production of electric vehicles.
The index was created in response to client demand for investable thematic strategies that offer exposure to the global energy transition. The energy transition represents both a significant challenge and opportunity to financial market participants, and nowhere is that dichotomy more obvious than in commodities markets.
The S&P GSCI Electric Vehicle Metals is a commodities futures-based index that is designed to reflect the performance of the tradeable metals used in the production of an EV. The expertise of SPGCI is leveraged for data to help determine the index constituents and production weights to ensure the index broadly reflects the relative metal usage in a representative EV. An important characteristic of the index is the flexibility to reweight, add or remove constituents at regular intervals to ensure that it can adapt to changes in EV technology and the launch and adoption of new metals futures contracts.
Constituents in the index are weighted based on their current metal usage in an average EV multiplied by the average per unit price for the metal, thereby representing the relative cost (or value) of the metal components in an EV. Minimum contract trading and liquidity rules for constituent inclusion, similar in design to the eligibility criteria used for the broad S&P GSCI, are also applied. Additionally, battery metal constituents, as defined by SPGCI but including cobalt and lithium, are capped based on contract trading volume and liquidity requirements to ensure that the index is both replicable and investable. Exhibit 1 illustrates the index constituents at launch and representative weights following the January 2022 rebalance. Exhibit 2 compares the recent performance of the index with the broad-based S&P GSCI.
Another important characteristic of the index is that it is based on commodities futures, not equities. The presence of equity market beta in thematic equity indices can make it difficult for these indices to truly reflect the performance of a particular theme or component of the real economy. It may not be possible to know which companies will win the battle for EV supremacy, but measuring the supply and demand dynamics and price performance of the underlying physical components that will be needed to build out the EV fleet is relatively straightforward.
The S&P GSCI Electric Vehicle Metals is the first S&P DJI index to incorporate data from SPGCI. It is exciting to bring together the expertise of two analytically independent S&P Global divisions on such an important and relevant segment of the investment landscape. Together, we hope to improve market transparency and offer market participants the ability to build unique investment strategies across a growing segment of the energy transition.The posts on this blog are opinions, not advice. Please read our Disclaimers.