In 2025, rare earth exchange-traded funds (ETFs) remain a strategic option for investors looking to gain exposure to critical materials essential to the energy transition, defense technology, and high-performance electronics. These ETFs track companies involved in mining, refining, and supplying rare earth elements (REEs), a niche but increasingly vital part of the global supply chain.
Why rare earths still matter in 2025
Strategic importance
Rare earths like neodymium, praseodymium, and dysprosium are irreplaceable in permanent magnets used in electric vehicles (EVs), wind turbines, drones, and missile guidance systems. As nations seek to reduce dependence on a single dominant supplier (China), securing alternative sources has become a top priority.
Electrification and green energy
Permanent magnets made from rare earths are a core component in EV drivetrains and renewable power generation equipment. Global demand for these materials continues to grow in line with clean energy goals.
National security focus
Governments are investing in domestic rare earth supply chains to ensure access for military and industrial applications. This policy trend supports long-term demand and capital inflows into the sector.
Advantages of rare earth ETFs
- Diversification: Instead of picking individual miners, investors gain exposure to a basket of companies across the rare earth value chain.
- Lower volatility: ETF structure helps mitigate single-stock risk in a notoriously volatile commodity segment.
- Thematic exposure: Rare earth ETFs align with major investment themes such as electrification, energy security, and deglobalization.
- Access to global producers: Many rare earth mining companies are based outside the U.S., and ETFs provide a convenient way to access international markets.
Leading rare earth ETFs in 2025
VanEck Rare Earth/Strategic Metals ETF (REMX)
- Holdings: Includes global producers of rare earths, lithium, cobalt, tungsten, and other strategic metals
- Geographic spread: Companies from Australia, China, Canada, and the U.S.
- Strengths: Largest and most liquid rare earth-focused ETF, with diverse exposure to both miners and refiners
- Recent trend: Rotating allocations toward companies with active production and vertical integration
KraneShares Electrification Metals ETF (KMET)
- Broader scope: Includes rare earths alongside copper, lithium, and nickel
- Theme: Tailored toward electrification and battery metals
- Why it fits: Suitable for investors who want rare earth exposure in a broader critical materials context
Global X Disruptive Materials ETF (DMAT)
- Focus: Companies producing and enabling strategic materials, including rare earths
- Differentiator: Includes tech and industrial firms downstream from rare earths, offering more balanced exposure
Performance outlook for rare earth ETFs in 2025
Demand side drivers
- EV production: Projected to exceed 15 million units globally in 2025
- Wind energy growth: Increased installations of direct-drive turbines
- Defense budgets: Higher spending on drone and missile technologies boosts magnet demand
- Tech innovation: Expanded use of REEs in advanced electronics, robotics, and automation
Supply side challenges
- Concentration risk: China still controls over 60% of rare earth production and nearly all refining capacity
- Slow development: New rare earth projects have long permitting and construction timelines
- Processing limitations: Few non-Chinese facilities have full separation capabilities
These structural constraints support long-term price strength, especially for magnet-focused rare earths.
Risks to consider
- Commodity price volatility: Rare earth prices are influenced by political developments, inventory cycles, and opaque trading mechanisms
- Geopolitical risk: Any disruption in China’s exports or regional instability can affect supply
- ETF composition drift: Some ETFs include companies more exposed to other metals (like lithium or graphite), diluting pure rare earth exposure
- Technological substitution: Advances in motor or magnet design may eventually reduce dependency on specific REEs, though this remains unlikely near term
Who should consider rare earth ETFs in 2025?
- Long-term investors seeking exposure to energy transition supply chains
- ESG-focused portfolios targeting sustainable and strategic materials
- Those looking to hedge against geopolitical risk in critical mineral supply
- Investors wanting diversified access to small and mid-cap miners difficult to buy individually
Rare earth ETFs continue to offer a compelling investment case in 2025 for those focused on structural demand trends and supply chain realignment. While volatility and concentration risk remain, the sector benefits from a strong policy and industrial backdrop that supports its long-term relevance.