New ETF Offers Rare Earth Investment While Bypassing Chinese Market Dominance

China maintains dominance over rare earth materials, controlling 60% of global mining and 80% of processing according to a 2025 report from Resources for the Future, creating supply chain vulnerabilities for Western nations and industries that rely heavily on these minerals. The political relationship between the U.S. and China has been tenuous, highlighted by China's threat last October to end rare earth exports during tariff negotiations, demonstrating its economic leverage in this strategic sector. Rare earth elements are crucial for modern technologies including electronics, renewable energy, magnets, batteries and catalysts, making them essential components for national security and green energy supply chains.

The recently launched Sprott Rare Earths Ex-China ETF (NASDAQ: REXC) aims to provide exposure to the rare earth materials industry while excluding companies located within China, focusing instead on companies operating outside the world's largest rare-earth market. This fund is part of Sprott's expanding suite of critical materials ETFs, which includes the Sprott Critical Materials ETF (NASDAQ: SETM), with the nuance being that it avoids exposure to China and focuses on non-Chinese companies strengthening Western supply chains. The investment objective seeks to provide results tracking the Nasdaq Sprott Rare Earths Ex-China Index, investing in rare earth miners and producers outside of China and rebalancing quarterly.

Designed for investors looking for pure-play exposure to rare earth materials while navigating geopolitical risks associated with Chinese production, Sprott reports it's the first ETF with such a focus. The fund invests in the largest and most liquid companies generating at least 50% of revenues from rare earth and strategic metals, with significant exposure to small- and micro-caps and emerging-market issuers typically producing elements like cerium. As Marco Rubio noted in a 2019 National Defense University speech, rare-earth minerals represent a critical industry where market efficiency has allowed Chinese domination, creating strategic vulnerabilities.

The wild card risk for rare-earth investors centers on whether China might use its industry leverage to influence geopolitical policy, making development of non-China sources a key consideration moving forward. For retail investors, the rare-earth space presents unique opportunities for diversification and hedging, with funds like REXC offering access through a single investment available at online brokerages. The administration has emphasized the need to develop stronger rare-earth industries outside China, supporting more domestic and non-China sources after negotiating a deal where the U.S. reduced tariffs in exchange for China holding off on restricting rare-earth exports for a year.

Investors should consider that the Sprott Rare Earths Ex-China ETF is new with limited operating history and involves substantial risk, including high volatility and potential significant losses. The fund is non-diversified and can invest greater portions in individual issuers than diversified funds, while rare earths have more specialized uses than base metals and demand has strained supply, potentially creating shortages affecting companies in the fund. Additional information is available in the statutory prospectus at https://sprottetfs.com/rexc/prospectus, and shares trade on secondary markets rather than being individually redeemable.