Why Critical Materials Remain a Long-Term Investment Theme

August 5, 2026 | (10 mins 14 secs)

How are critical materials markets navigating today's volatile environment? In this episode of Metals in Motion, Steve Schoffstall joins ETFguide's Thalia Hayden to discuss the long-term outlook for critical materials, the growing impact of AI, data centers and power demand on metals consumption and how geopolitical developments are reshaping global supply chains. He also explains how the Sprott Critical Materials ETF (SETM) offers diversified exposure to the critical materials theme and shares his perspective on where investors may find opportunities in the current market.

Video Transcript

Thalia Hayden: You're watching Metals in Motion. I'm Thalia Hayden with ETFguide. Joining us today is Steve Schoffstall, Managing Partner and Head of ETFs at Sprott Asset Management. Steve, welcome to the show. It's great to see you again.

Steve Schoffstall: Great to be back. Hope you're having a great summer.

Thalia Hayden: Thank you. How are you seeing critical materials investors react to the current market volatility?

Steve Schoffstall: This is a question we're getting a lot. Given all the volatility we've seen in the market, investors are largely sitting on the sidelines. We haven't seen mass outflows of many critical materials. But we haven't seen investors move into them, as we have over the last 12 to 18 months. I think some of the softness that we're seeing is generally coming on low-volume days, which tends not to be a high conviction move. It's just a little volume moving the needle a bit. But generally, we're seeing investors continuing to add to rare earths and uranium, which have been two bright spots over the last several months. As most other things have sold off, those categories have still seen inflows. When you look at how those commodities have done, physical uranium is still up about 6% on the year. Lithium is up about 19%, and copper is still around all-time highs, up around 11%. There are still some opportunities and I think some investors are looking for opportunities to enter the space.

Thalia Hayden: What role do data centers, AI power demand and grid expansion play in driving materials consumption?

Steve Schoffstall: It's a very important role because they all point back to electricity growth and demand for electricity. If we look at the strategic uses of many of these critical materials, things like AI, the grid, the energy transition, infrastructure expansion and defense, they're adding a lot of demand across the board. Copper is a great illustration of this. When we look at those categories, which we've called strategic uses, demand for copper is expected to rise from about 32% to 45% just from those core strategic uses. That's out through 2040, so not too far off into the future. Over the last 5 or 6 years, investments in these strategic uses have increased by about 78%. We still believe there's a lot of momentum to go in those areas of the economy, particularly as they relate to the energy transition and the critical materials opportunity.

Thalia Hayden: Steve, would you say you're seeing meaningful shifts in sourcing, reshoring or geopolitical risk that investors should be aware of?

Steve Schoffstall: We are. The supply chain issues that have plagued critical materials are not abating anytime soon, and, if anything, we've seen the opposite. Back in April, China announced export controls on certain dual-use materials, including rare earths. And then, at the end of June, they imposed additional export controls on 10 U.S. companies that could be involved in the defense sector. They followed that up at the end of July by including 14 European countries in those export restrictions. This is something that's really playing out, particularly in the rare earths market at the moment. Material sourced outside of China is commanding a pretty hefty premium. Yttrium, for example, is a rare earth element used in the turbines of F-35s and is very important for defense purposes. We're seeing prices of that metal trade about 180 times higher than what's trading inside China. These higher prices can help incentivize domestic production in Western countries.

Thalia Hayden: Tell our viewers how a strategy like the Sprott Critical Materials ETF (SETM) benefits investors in the current market landscape.

Steve Schoffstall: SETM is one of the funds in our lineup that has particularly appealed to advisors because it provides that one-ticker solution. It provides broad-based exposure to up to nine different critical materials. Typically, I think what investors would notice if they were to look beneath what they actually own, past the fund name and look into the strategy, is that a lot of commodity funds, and a lot of mining funds, are underweight critical materials. SETM provides a one-ticker solution for investors that might not feel comfortable picking one metal over another. This gives them that one ticker solution: they can buy that basket and generally benefit from higher critical-materials prices and better valuations in mining stocks.

Thalia Hayden: Any other ways SETM differs from other options available to investors?

Steve Schoffstall: SETM is a very targeted exposure. I mentioned the nine different metals that would cover energy generation, energy transmission and battery metals. Think about the other buckets like copper, silver, rare earths and uranium. Uranium is one of the key pieces of the strategy. Many other similar strategies available to investors don't have any meaningful allocation to uranium, if any. Another thing we do in this strategy is make sure that no single metal becomes too dominant. Because of that, we have caps in the strategy that limit any single metal to no more than 25% of the overall exposure. And finally, something that sets us apart from competing ETF strategies is our very minimal exposure to China. China A-share companies aren't included in the methodology, but we currently have less than 1% exposure to China. When you start looking at other competing strategies, you could see somewhere between 30 and 35% exposure to China. This is a very different outcome for investors who understand the reshoring move and the role that Western companies are likely to play relative to Chinese companies.

Thalia Hayden: Steve, what opportunities do you see in the current market environment?

Steve Schoffstall: One of Warren Buffett's most well-known quotes is to be fearful when others are greedy and greedy when others are fearful. From that standpoint, we view this as a buying opportunity as we've seen some weakness across equities, not so much in the broader-based exposures like the S&P 500, but more in sector-based allocations. There are some opportunities there. When you look at how critical materials have performed in recent years, we see that miners are generally in a position where their balance sheets have improved significantly. We're seeing higher profitability, much stronger balance sheets and less leverage in some cases. And when you look at the underlying demand for many of these critical materials, it's only gotten stronger over the last 12 to 24 months as these geopolitical tensions keep playing out. We see it drawing support not only from governments but also from private industry. And that's not something we see ending anytime soon. My advice to investors is to be prepared for some volatility. But with that, if you believe in a long-term investment thesis, this could be a potentially good buying opportunity.

Thalia Hayden: Final question along the same lines: in the current environment, what should investors consider when initiating a position in critical materials?

Steve Schoffstall: The first thing I would do is probably what I just said about being comfortable with volatility. I think the current market shows that there can be volatility not only in critical materials and commodities in general, but also in the broader economy. Second, and probably the most important, we advocate for a long-term outlook on critical materials. In the mining industry, you can't really move quickly. It's not like you can dial up or dial down production. We're not manufacturing shoes or sweaters here. There's a lot of permitting and regulation that has to happen. From a long-term demand perspective, it's going to take these companies some time to react because they have to build out new mine sites, go through the regulatory process, and so forth. And I think the last piece is just understanding what you own. This is something we're always telling clients to look past when it comes to an ETF's name. Spending just five minutes or so in a prospectus is usually enough to understand exactly what the fund's going to invest in and what the investment strategy is. And I think that when you start spending some time looking beyond the fund name, you understand that while the strategies might have similar names, there are many differences beneath the surface. We're always proponents of an educated investor. We're consistently publishing research and content on our website, and it's been a great resource for investors. Much of that is product-agnostic, and I encourage investors to visit SprottETFs.com for more information on these themes.

Thalia Hayden: We learn so much from you, Steve, every time we talk. Thank you, and we appreciate your insights.

Steve Schoffstall: Thanks for having me back.

Thalia Hayden: You can get the latest research and dive deeper into Sprott’s ETFs tied to today's most in-demand critical materials from uranium to copper and beyond. Just like Steve said, learn more at SprottETFs.com.