Highlights
- China dominates rare earth supply chains, controlling 66% of global critical raw materials.
- Direct rare earth metal investment is challenging due to the lack of liquid futures markets and complex supply dynamics.
- Emerging platforms and national strategies are transforming the REE investment landscape beyond traditional ETF approaches.
Fernando Luque’s Morningstar (opens in a new tab) piece back in 2023 explored whether retail investors can gain effective exposure to rare earth elements (REEs) and strategic metals. His central claim is that while these materials are geopolitically vital and economically indispensable, the practical investment options—especially through ETFs like VanEck’s Rare Earth and Strategic Metals UCITS ETF (REMX)—are structurally limited and pose challenges to portfolio diversification. Luque contends that the unique characteristics of rare earths make direct investment difficult, and that ETFs offer more exposure to the equities of mining companies than to the underlying commodities themselves.
On the Money
Luque correctly underscores China’s dominance, noting that at the time the Asian nation supplied 66% of global critical raw materials, including all rare earths. He also accurately identified the geopolitical leverage China held at the time (and still maintains) via its control of supply chains, which has been wielded through export bans on gallium, germanium, and other elements.
The article’s author rightly points out that rare earth investing is not commodity-based in the way that gold or oil might be. There are no liquid, standardized rare earth futures markets. Thus, investor exposure comes primarily via equities of upstream and midstream companies, which may have highly diversified revenue streams unrelated to rare earths specifically.
Finally, Luque wisely cautions that REMX’s exposure is diffuse. As VanEck itself discloses, the ETF includes companies that mine rare earths alongside other metals, and one-third of its holdings are in Chinese firms, which could be vulnerable to regulatory or geopolitical shocks.
Assumptions & Challenges
Luque assumes that investors primarily want transparent, metal-specific exposure—something that is extremely difficult in the rare earth sector due to opaque supply chains and vertical integration dominated by Chinese state-owned enterprises (SOEs). He also assumes a static investment landscape, downplaying emerging Western producers, refining technologies, and government-backed reshoring initiatives in Australia, the U.S., and Canada.
Furthermore, a couple of years ago, he highlighted performance volatility without addressing that volatility reflects not just commodity pricing, but also geopolitical shifts, ESG hurdles, and regulatory timelines—core characteristics of rare earth investing that reflect its strategic nature rather than portfolio inefficiency alone. Note that Rare Earth Exchanges (REEx) has emerged as a platform for the retail investor to better understand many of these dynamics.
REEx POV
While Luque offered a solid primer for mainstream investors, several conclusions underrepresented the evolving investment landscape:
| Key Points of Consideration | Summary |
|---|---|
| Incorrect or Oversimplified | Would Luque’s view change if acknowledging that supply chain-linked platforms (e.g., like Rare Earth Exchanges) were emerging to offer more targeted, transparent exposure to REE projects and assets, beyond a blunt ETF instrument? |
| Overlooks Upstream-to-Downstream Evolution | The author fails to note the increasing importance of midstream refining, alloying, and magnet production, where most future value creation and government investment is focused. |
| Neglects National Security Tailwinds | Luque’s analysis, even a couple of years ago, lacked consideration of how, even then, U.S., EU, and allied industrial policies were starting to create new, publicly funded investment channels, along with efforts to de-risk opportunities in rare earth infrastructure. |
Conclusion
Luque’s article rightly warns retail investors against simplistic expectations in rare earth investing, but it misses the deeper transformation occurring within the REE supply chain. While ETFs like REMX may be blunt tools today, specialized platforms, national strategies, and vertically integrated ventures are reshaping the investability of this sector. From the REEx perspective, the challenge is not whether to invest in REEs—but how to structure exposure that reflects supply chain reality, not just market proxies.
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