Author: mangakiko

As the transition towards renewable energy continues to inch forward day by day, perhaps the most abundant thematic – electric vehicles (EVs) – is leading the charge.

Lithium (and arguably, nickel and cobalt) is typically considered the darling child(ren) of the battery metals segment. However, one often-overlooked segment has opened up a compelling value proposition.

Rare earths, which, coincidentally, aren’t all that rare (in the ground anyway), have garnered attraction lately.

The group is comprised of 17 metals that are essential to technological functions in society.

Rare earths ASX mining shares open a compelling proposition

According to Dr Kingsley Jones, analyst at Jevons Global Investment Advisory, “[t]he EV market thematic is driving higher demand for rare earth metals”.

In a recent note, Jones covers the market for rare earths. In it he builds a core basket of portfolio companies to gain exposure to the space.

He said that demand has accelerated for the basket of rare earths within ASX mining shares. This is due to their use in high-performance magnets used in electric motors and generators.

In particular, the “rapid uptake of EVs and the very large generators used in wind turbines to provide renewable energy” has underpinned the demand.

Aside from that, China refines and produces more than 60% of the world’s unprocessed rare earth oxides.

Not to mention, rare earths are notoriously hard to extract anyway. The reason? “Host minerals are difficult to process and the rare earths are hard to separate,” Jones says.

With that, the analyst and his employer suggest five companies for investors to hone in on for exposure to rare earths from mine to metal, all the way downstream.

These include Arafura Resources Limited (ASX: ARU), Hastings Technology Metals Ltd (ASX: HAS) and Australian Strategic Materials Ltd (ASX: ASM). I’ve covered the other two here.

This basket of stocks provides a diversified offering of names with exposure to rare earths at different points along the value chain, Jones says.

Take a look at the returns for each of these shares for the past 12 months on the chart below.

Buying ASX shares can be very fruitful in the long run, but it’s demonstrably difficult to do better than average (“the market”).

If it was easy, everyone would be doing it.

So if you’re not happy with the performance of your portfolio, especially in a turbulent year like 2022, you may need to pause and assess.

After all, “Am I doing this right?” is a wise question one can ask oneself in any endeavor in life.

To help answer this self-critique, the team at Marcus Today put forward two types of amateur portfolios that should ring alarm bells:

Just buy ETFs rather than own a ‘moron portfolio’

The first red flag is if your portfolio consists entirely of well-known S&P/ASX100 (ASX: XTO) companies.

“A lot of you probably do this by default. This is where most of you get trapped. Holding around 20, mostly big, mostly obvious stocks,” the Marcus Today blog post read.

“You trust them by virtue of their size and brand but don’t know them in detail.”

One might think holding such massive companies is “safe” but this is deceptive because it can provide a false sense of security and encourage laziness.

“This is often a more risky approach than it looks because of your lack of research and engagement.”

Many people who possess this mix of ASX shares are voluntarily “stuck” because they are too afraid of the potential tax bill after years of holding.

“You can get trapped into this approach by capital gains (‘I can’t sell’), which is understandable but not ideal,” read the blog post.

“It may seem normal and sensible, but the truth is that if you’re going to do this ‘moron portfolio’ thing, you’d be better saving yourself from a lot of admin, activity and lost evenings and weekends by just buying market ETFs.”

The Marcus Today team admits people who ended up with such a portfolio from an inheritance — or from shares provided at an initial public offering, such as Commonwealth Bank of Australia (ASX: CBA) or Insurance Australia Group Ltd (ASX: IAG) in the 1990s and 2000s — are not at fault.

But even they might want to consider mixing up the investments.

“Just don’t pretend it’s ‘clever’. It’s lazy.”

Trading anything and everything

Perhaps the opposite of just holding a bunch of ASX 100 names is stock picking anything and everything.

For the Marcus Today team, this should also ring alarm bells.

“Now we get to a place [that] a lot of beginners get trapped without knowing it’s not normal,” read the blog post.

“It involves tips and it invites a lot of volatility, risk and reward. It is for people who don’t have a heart condition.”

The amount of volatility and risk involved in such a portfolio means a lot of time and energy required to keep one’s head above water.

“This is riding the stormy seas. It’s about timing fads, finding diamonds in the rough, spotting change.

“It’s for those of you with the time and energy and risk profile to attempt transformation.”

The trouble with this approach, other than the heightened risk, is that it only really works during bull markets. Years like 2022 would have slaughtered such a portfolio.

Stocks with no earnings die in the cold. Trading loses money when it goes cold. Trading is an activity to do when the sun comes out.”