The recent launch of the Sprott Rare Earths Ex-China ETF (NASDAQ: REXC) highlights a growing push to diversify rare earth supply chains away from China, which currently mines 60% of global supply and processes 80% of these materials, according to a 2025 report from Resources for the Future. The fund, which tracks the Nasdaq Sprott Rare Earths Ex-China Index, invests exclusively in rare earth miners and producers outside China, offering a pure-play exposure to this critical sector while navigating geopolitical tensions.
China's dominance over rare earth elements (REEs)—a group of 17 chemically similar elements used in magnets, batteries, catalysts, and defense technologies—has long posed a risk to Western economies. Last October, the Chinese government threatened to end exports of rare earths, leveraging its control amid a tariff dispute with the U.S. Although a subsequent deal temporarily averted restrictions, the vulnerability of supply chains remains a pressing concern. U.S. Senator Marco Rubio underscored this in a 2019 speech, asking, "What happens when an industry is critical to our national interest, yet the market determines it is more efficient for China to dominate it?"
The Sprott Rare Earths Ex-China ETF is designed for investors seeking to mitigate these geopolitical risks. It focuses on companies that generate at least 50% of their revenues from rare earth and strategic metals, with significant exposure to small- and micro-cap firms and emerging-market issuers. The fund rebalances quarterly and is part of Sprott's expanding suite of critical materials ETFs, which includes the Sprott Critical Materials ETF (NASDAQ: SETM). According to Sprott, REXC is the first ETF with such a focus on excluding Chinese companies.
The importance of developing non-Chinese rare earth sources has been recognized at the highest levels. The U.S. administration has signaled support for domestic and allied production, aiming to strengthen supply chains for applications ranging from electrification to semiconductor manufacturing. For retail investors, the rare earth space offers opportunities for diversification and hedging against geopolitical uncertainty. A fund like REXC provides access to this sector through a single investment vehicle, readily available at online brokerages.
However, investing in rare earths carries substantial risks. The fund is considered non-diversified and can invest heavily in individual issuers, leading to greater share price volatility. Additionally, the specialized uses of rare earths mean that demand has strained supply, potentially causing shortages. As noted in the fund's prospectus, available at https://sprottetfs.com/rexc/prospectus, investors should be willing to accept high volatility and the possibility of significant losses.
Looking ahead, the question remains whether China will use its rare earth leverage to influence geopolitical policy. The development of alternative sources outside China is likely to continue as a key strategic priority, making funds like REXC a timely tool for investors who want to align with Western supply chain resilience while seeking exposure to a critical materials sector.
