SETM Frequently Asked Questions (FAQs)


SETM Launch of Sprott Energy Transition Materials ETF (Nasdaq: SETM)

On February 1, 2023, Sprott Asset Management announced the launch of four Exchange Traded Funds (ETFs): Sprott Energy Transition Materials ETF (Nasdaq: SETM), Sprott Lithium Miners ETF (Nasdaq: LITP), Sprott Junior Uranium Miners ETF (Nasdaq: URNJ) and Sprott Junior Copper Miners ETF (Nasdaq: COPJ).

Please Note: This FAQ is not wholly inclusive of all relevant information. Investors should consult the prospectus for more information, or please reach out to your Sprott representative at 888.622.1813 or energytransition@sprott.com for additional questions.

1

How can I invest in the Sprott Energy Transition Materials ETF?

The Sprott Energy Transition Materials ETF is listed on Nasdaq® under the symbol “SETM.” Investors can purchase SETM in a brokerage account or by contacting their financial advisor.

2

What is the Sprott Energy Transition Materials ETF investment objective and strategy?

The Sprott Energy Transition Materials ETF (SETM) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Nasdaq Sprott Energy Transition Materials™ Index.

The Nasdaq Sprott Energy Transition Materials™ Index is designed to track the performance of a selection of global securities in the energy transition materials industry. The Fund will, under normal circumstances, invest at least 80% of its total assets in securities of this Index.

3

What is the energy transition?

The energy transition is a significant global structural change intended to decrease our dependence on fossil fuels in favor of low-carbon and renewable energy. While we believe fossil fuels will likely continue to play a role in our future, substantial global investment and government mandates in favor of low-carbon and renewable energy are driving opportunities in the energy transition industry.

4

What is the Nasdaq Sprott Energy Transition Materials™ Index’s methodology?

The Index combines Sprott’s decades of experience in the mining sector with Nasdaq’s renowned index expertise. To be eligible for inclusion in the Nasdaq Sprott Energy Transition Materials™ Index (NSETM™), a company must meet the requirements that follow.

Eligibility Requirements

    • Be a security listed on an approved exchange
    • A security’s issuer must be classified by Sprott as an Energy Transition Materials Producer, Developer, Explorer, Refiner, Smelter, Recycler, Royalty Company, or securities that invest all or a significant portion of their assets in Energy Transition Materials or engage in supplying energy transition materials. 
    • Have a free-float market capitalization of at least $100 million or $50 million for existing constituents
    • The security must have been publicly traded at least three months prior to the reconstitution reference date
    • A security must have a three-month average daily traded value of at least $500,000 or $250,000 for existing constituents

Constituent Weighting Process

    • The Index is a modified free-float market capitalization-weighted index
    • A theme-adjusted free-float market capitalization is calculated for each constituent by multiplying a security’s free-float market capitalization by its theme intensity score1
    • For stocks without revenue or for which revenue is an inappropriate characteristic, the intensity score is given at 50%
    • A stock’s weight is determined by the adjusted market capitalization
    • Constituents’ initial weights are determined by dividing each constituent’s theme-adjusted free float market value by the aggregate theme-adjusted free float market value of all constituents
    • Initial weights are adjusted to meet the following constraints:
      • The aggregate weight of constituents classified as any specific energy transition material may not exceed 25%
      • No constituent weight may exceed 4.75%

Index Rebalancing

    • The Index is rebalanced semi-annually in June and December, effective at the market open on the first trading day following the third Friday
5

Who may want to consider investing in SETM?

Investors that seek pure-play2 access to a range of critical minerals necessary to the global clean energy transition through companies that are upstream in the supply chain. Miners of the critical minerals necessary for the global energy transition may be well positioned to benefit from increased investment in the low-carbon and renewable energy sector.

6

What is clean energy?

Clean energy is energy that has zero carbon emissions and comes from renewable and nuclear energy sources. Currently, nations around the world have committed to the Paris Agreement, which is a legally binding international treaty on climate change. It was adopted by 196 Parties at COP 21 in Paris in December 2015. Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. To meet this goal, emissions need to be reduced by 45% by 2030 to reach net-zero by 2050.3

7

What are critical minerals?

Critical minerals are natural materials that are essential to the generation, transmission and storage of clean energy. Sprott focuses on uranium, silver and rare earths as energy generation minerals; copper as an energy transmission mineral, and lithium, nickel, manganese, cobalt and graphite as the battery metals crucial to energy storage.

8

Who will manage the Sprott Energy Transition Materials ETF?

Sprott Asset Management USA, Inc. is the investment adviser to the Sprott Energy Transition Materials ETF. ALPS Advisors, Inc. is the sub-adviser, and ALPS Fund Services, Inc. serves as the administrator. ALPS Distributors, Inc. is the Distributor for the Sprott Energy Transition Materials ETF and is a registered broker-dealer and FINRA Member. Additionally, State Street Bank and Trust Company serves as the custodian and transfer agent.

9

What are the key benefits of investing in the Sprott Energy Transition Materials ETF?

Increased investment is driving growth in the critical minerals necessary for the energy transition

  • Globally, $1.8 trillion was invested in the energy transition sector in 2023, far exceeding fossil fuel’s supply investment for the first time4
    • The electrified transportation sector saw $634 billion of investment4
    • Investment in renewable energy totaled $623 billion4
    • The nuclear energy and electrified heating sectors saw $96 billion in investment in 2023
  • Investments in electric transportation grew by 28% in the United States in 20234
  • Global growth is driving investment opportunities in the energy transition, with more than ~90% of investment in the sector occurring outside of the U.S.4

To meet 2050 net-zero goals, substantial investment is needed for the foreseeable future

  • To get on track for net zero by 2050, energy transition and grid investments need to average $4.8 trillion between 2024 and 2030, which is 2.7 times the total spent in 20234
  • In the 2030s, the annual required investment is estimated to increase to $6.59 trillion, before reaching $7.59 trillion in the 2040s4
  • Mining capacity needs to expand to meet the growing demand for critical minerals. In order to keep up with demand, production may need to increase nearly 900% for lithium, by 2040 relative to 2022, and approximately 120% to 166% for nickel, cobalt and neodymium – minerals that are essential to electric vehicles5

The Sprott Energy Transition Materials ETF is the only* ETF to provide pure-play exposure to a broad range of critical minerals and mining equities essential to the transition to cleaner energy

  • SETM’s holdings are pure-play companies with business operations that are focused on the energy transition materials sector
  • Companies that are upstream in the supply chain may be well-positioned to benefit from the increased investment in the critical minerals essential to the clean energy transition
  • By not focusing on only one aspect of the clean energy transition, SETM allows investors to participate in the broader energy transition, without having to pick and choose certain segments of this emerging opportunity
10

Why does the Sprott Energy Transition Materials ETF add value?

  • Currently, Investors Have Limited Choice
    SETM is the only ETF to provide pure-play exposure to a broad range of critical minerals and mining equities essential to the transition to cleaner energy.
  • Investing in Individual Companies that Mine Critical Minerals Poses Challenges
    Many mining companies are domiciled in foreign countries, have small market capitalizations, are volatile and may have limited liquidity. This makes individual equity investing more challenging for some investors. The Sprott Energy Transition Materials ETF offers investors a convenient vehicle to access the critical minerals mining sector along with company diversification. SETM also provides some exposure to a broad range of critical minerals and mining equities essential to the transition to cleaner energy.
  • Existing Commodity Funds Have Little Exposure to Critical Minerals
    Most ETFs focused on the energy transition sector provide exposure to companies that are end users of critical minerals, such as electric vehicle manufacturers, or companies that only devote a small portion of their revenue/operations to critical minerals. What sets SETM apart is the Index’s comprehensive selection process to identify pure-play companies that are upstream in the supply chain that may be well-positioned to benefit from the increased investment in the critical minerals necessary for the clean energy transition.
11

What themes may be driving investor interest in the Sprott Energy Transition Materials ETF?

We believe the Sprott Energy Transition Materials ETF has broad appeal to many investors. The following general themes are driving investor interest.

  • Energy transition/Clean energy theme
    Major nations have set aggressive decarbonization targets and goals to reduce emissions. Their proposals have begun encouraging investment in electric vehicles and infrastructure, wind and solar energy, and nuclear energy to assist in this effort. We believe that miners of critical minerals should benefit from this clean energy transition as they provide essential materials that are key to reaching decarbonization goals.
  • Energy security and sovereignty
    This issue became a top headline story in 2021 as the cost of energy spiked, which highlighted the vulnerability of relying on other nations to supply energy. Rising geopolitical risks in Europe, given the Russia-Ukraine war, help highlight the energy security that renewable energy can provide.
  • Commodity investing
    After many years out of favor, investors are returning to commodities to take advantage of supply shortages due to prolonged under-investment. The fundamentals for critical minerals are very constructive, with steady growth in demand coupled with a structural supply deficit that can only be addressed with a higher incentive price. Those invested in commodities and related equities should consider focusing on the potential future makeup of such markets, where we believe the energy transition sector will take a far greater market share.
  • Alternative exposure/Diversification
    Many mining companies are domiciled in foreign countries, have small market capitalizations, are volatile and may have limited liquidity, potentially limiting their inclusion in major equity indices. Exposure to the pure-play companies in SETM’s strategy may add exposure to investor portfolios that may otherwise be lacking in traditional equity strategies. 
12

Will the Sprott Energy Transition Materials ETF pay distributions?

The Sprott Energy Transition Materials ETF expects to declare and distribute all its net investment income, if any, to shareholders as dividends at least annually and on a pro-rata basis. The Fund may distribute such income dividends and capital gains more frequently, if necessary, to reduce or eliminate federal excise or income taxes on the Fund.

 

Please reach out to your Sprott representative at 888.622.1813 or energytransition@sprott.com for additional questions.

* Based on Morningstar’s universe of Natural Resources Sector Equity ETFs as of 6/30/2023.

1 The intensity score for stocks with revenue and for which revenue is deemed to be an appropriate characteristic is the percentage of their revenue attributable to the aforementioned strategy of the Index.
2 The term “pure-play” relates directly to the exposure that the Fund has to the total universe of investable, publicly listed securities in the investment strategy.
3 United Nations Framework Convention on Climate Change (UNFCC).
4 Source: Energy Transition Investment Trends 2024, BloombergNEF.
5 Source: “Critical Minerals Market Review”, International Energy Agency (IEA), July 2023. Data shown for Net Zero Emissions Scenario.

Important Disclosures & Definitions

An investor should consider the investment objectives, risks, charges, and expenses carefully before investing. To obtain a Sprott Energy Transition Materials ETF Statutory Prospectus, which contains this and other information, visit https://sprottetfs.com/setm/prospectus, contact your financial professional or call 888.622.1813. Read the Prospectus carefully before investing.

The Fund is not suitable for all investors. Investors in the Fund should be willing to accept a high degree of volatility in the price of the Fund's shares and the possibility of significant losses. An investment in the Fund involves a substantial degree of risk. The Funds are con-diversified and can invest a more significant portion of assets in securities of individual issuers than a diversified fund. As a result, changes in a single investment's market value could cause more significant share price fluctuation than in a diversified fund.

Shares are not individually redeemable. Investors buy and sell shares of the Sprott Energy Transition Materials ETF on a secondary market. Only market makers or "authorized participants" may trade directly with the Fund, typically in blocks of 10,000 shares.

Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of investment losses. ETFs are considered to have continuous liquidity because they allow an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses, affect the Fund’s performance.

The Sprott Energy Transition Materials ETF seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the Nasdaq Sprott Energy Transition Materials Index (NSETM).

Nasdaq®, Nasdaq Sprott Energy Transition Materials Index, and NSETM are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Sprott Asset Management LP. The Product(s) have not been passed on by the Corporations as to their legality or suitability. The Product(s) are not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT(S).

Sprott Asset Management USA, Inc. is the Investment Adviser to the Sprott Energy Transition Materials ETF. Sprott Asset Management LP is the Sponsor of the Fund.  ALPS Distributors, Inc. is the Distributor for Sprott Energy Transition Materials ETF and is a registered broker-dealer and FINRA Member.

ALPS Distributors, Inc. is not affiliated with Sprott Asset Management LP.

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