Given that rare earths are essential to future technologies such as electric cars and mobile phones, how prudent is it to invest in them?

Rare earths have become an integral part of modern society and, amid ongoing geopolitical tensions, nations from the US to China are increasingly investing in them.

Comprising a group of 17 minerals, rare earths are a key element in the production of both large-scale and domestic technology, such as electric cars, wind turbines, defence industry infrastructure and even mobile phones. Rare earths specifically make up the magnets that help these technologies to run.

Nearly all products that use rare earths have one thing in common: they are integral components of the future modern world. With the UK aiming to ban the sale of new petrol and diesel cars by 2035, investment in electric cars is expected to further increase from its already steady growth. Likewise, with rare earths being so important for aerospace and radar technologies, demand for them is expected to rise in an ever-volatile world seeking secure defence infrastructure.

China dominates the world’s rare earth industry. Of the 110,000,000 tons of rare earth deposits globally, China has 44,000,000, according to data from the United States Geological Survey in 2024. The nation dominates the processing industry in particular, processing 90 per cent of the world’s rare earth elements, data from Mining Technology shows. Vietnam, the second-richest country in terms of rare earth deposits, has 22,000,000 tons of the critical minerals, which is half of China’s supply. In comparison, the US has 1,800,000 tons of rare earth deposits, making up only 4 per cent of China’s stock.

Rare earths are only usable in technology once they have been processed, making this part of the industry arguably more important than mining and more hotly contested between countries today.

With the ongoing trade wars between the US and China and America seeking to become increasingly self-sufficient regarding imports, rare earths have become a highly sought-after resource. The two nations are currently holding talks about these integral minerals, taking place amid a highly volatile global trade environment spurred on by US President Donald Trump’s tariffs. China implemented restrictions on exports of rare earths in October 2025, introducing a licensing system on products using Chinese rare earths and their processing technologies, with the aim of preserving its dominant position in the industry.

In response, the US has been making investments of its own in the industry. The only large-scale mining and processing site of rare earths in North America is run by MP Materials. The company announced on Wednesday a deal to build a rare earths processing site in Saudi Arabia, together with the Gulf kingdom’s state-owned mining company, Maaden, and the US government. The deal, in which the US and MP Materials hold a joint 49 per cent stake, has seen MP Materials’ stock surge.

Unlike gold, investing in rare earths is not about investing in a tangible asset. Rather, the investments are in the mining and notably the processing of these critical minerals.

The most efficient way to invest in rare earths is through an exchange-traded fund (ETF), explained Andrew Wilson, who is in charge of investments at Lockhart Capital Management, a UK-based wealth management firm.

‘VanEck and WisdomTree are both very credible ETF providers and have rare earths and strategic metals options,’ said Wilson.

An ETF is an investment fund that holds a collection of assets, which could include stocks, bonds or commodities, and is traded like an individual stock on the stock exchange. Wilson noted that VanEck and WisdomTree have large holdings in the US-based miner MP Materials.

‘Any investment involving mining is inherently risky, or at least riskier than, say, a consumer staple company,’ said Wilson. ‘There are some obvious geopolitical reasons for that, but also that mines can be located in parts of the world where property rights are less secure and politics far from stable. One should take this into account when sizing the position in a portfolio and calculating its risk and loss strategies.’

Wilson added: ‘The VanEck and WisdomTree ETFs have significant exposure to Canada and Australia, which are preferable options when it comes to mine location.’

Most ETFs will have 25 per cent of their rare earths investments based in China, explained Wilson, adding that they could even invest more, owing to the nation’s dominance in the industry.

‘A case can certainly be made for making a small allocation to rare earths in a portfolio, although they are still trading close to their highs, so the timing might not be ideal,’ said Wilson.

The term ‘earths’ could be considered misleading. ‘They do not get their names because they are inherently rare,’ said GianLuigi Mandruzzato, senior economist at private bank EFG International. ‘They are fairly abundant. They have a sexy name, but are not necessarily attractive until you start getting into the geopolitics of the industry, especially its processing.’

An average of 200 cubic metres of water is used to process 1 ton of rare earth elements, which is around enough to fill an Olympic-sized swimming pool, according to data from Rare Earths Exchanges.

‘Environmentally, China is willing to do things that other countries, for example the US, are not. When it comes to the processing of rare earths, it is a particularly dirty extraction process,’ said Mandruzzato.

There are human rights concerns with rare earths too. In Venezuela, guerilla groups have seized control of rare earths mines, according to a report from The Guardian. Likewise, indigenous communities in Myanmar face risks to their homes and working rights amid the rise of rare earths mining in the region, according to an article published by the London School of Economics.

While rare earths may seem promising amid the rush for countries to develop processing infrastructure, this may not be the case in the future.

‘Rare earths are not particularly supply-constrained,’ said Django Davidson, founding partner of investment firm Hosking Partners. ‘What is constrained is their processing. That is why there is a great rush in the West to try and increase the capacity for processing rare earths.’

Davidson was reluctant to express confidence in rare earths as an investment, owing to the supply potentially becoming more easily accessible in the future as processing infrastructure grows, especially in the US.

Mandruzzato expressed similar concerns: ‘From an investor perspective, there is a real danger of bubbles forming in the rare earths industry, because some of these materials, resource-wise, are slightly scarcer than others.’

‘“Rarer” rare earths, which are typically used for wind turbines, aerospace and defence, can attract more investors because they are a little bit scarcer, which causes the risk of a bubble forming,’ he added.

Extract from Spears Wealth by Christian Maddock (November 2025)