The launch of the Sprott Rare Earths Ex-China ETF (NASDAQ: REXC) marks a new investment vehicle aimed at addressing vulnerabilities in the rare earth supply chain, which is heavily dominated by China. As geopolitical tensions between the U.S. and China persist, the need for diversified sources of these critical minerals has become a national security and economic priority.
Rare earth elements (REEs) are essential for modern technologies, including electronics, renewable energy systems, magnets, batteries, and catalysts. Despite their name, some REEs are relatively abundant in the Earth's crust, but China controls about 60% of global mining and 80% of processing, according to a 2025 report from Resources for the Future. This concentration poses risks, as demonstrated last October when the Chinese government threatened to end rare earth exports amid a tariff dispute with the U.S. Although a deal was reached to delay restrictions for a year, the incident underscored the fragility of relying on a single source.
REXC is designed to track the Nasdaq Sprott Rare Earths Ex-China Index, investing in rare earth miners and producers outside of China. It adds to Sprott's suite of critical materials ETFs, including the Sprott Critical Materials ETF (NASDAQ: SETM). Sprott reports it is the first ETF with such a focus, providing pure-play exposure to rare earths while navigating geopolitical risks. The fund rebalances quarterly and invests in companies that generate at least 50% of their revenues from rare earth and strategic metals, with significant exposure to small- and micro-cap and emerging-market issuers.
The importance of developing non-China sources for rare earths was highlighted by then-Senator Marco Rubio in a 2019 speech at National Defense University: "What happens when an industry is critical to our national interest, yet the market determines it is more efficient for China to dominate it?" This sentiment reflects a broader shift in policy, with the U.S. administration ready to support domestic and allied rare earth projects.
For retail investors, funds like REXC offer diversification and hedging against geopolitical risks. However, the fund is new and carries high volatility and concentration risks. As noted in the prospectus, investors should be willing to accept significant losses. The fund's focus on small- and micro-cap firms also introduces additional risk.
Looking ahead, the rare earth sector is increasingly viewed as a key component of national security and green energy supply chains. While China remains dominant, Western-aligned companies are stepping up to strengthen supply chains. Whether China will use its leverage for geopolitical influence remains a wild card, but the push for non-Chinese sources is likely to continue. For investors seeking exposure to this critical space, REXC offers one avenue, but careful consideration of the risks is essential.
