Assessment of Efficiency of Investment in Companies Belonging to the Rare Earth Metals Sector

Abstract

Purpose – This paper aimed at assessing the efficiency of investment in companies belonging to the rare earth elements sector and examining the stability of the results. Research method – The following performance measures were used in the study: modified Sharpe and Omega, Sortino, Calmar, Sterling and Burke ratios. The investigation is based on daily quotations of selected companies whose business activities were related to extraction, processing and recycling of rare earth metals in the period: from July 2018 to June 2023 and MVIS® Global Rare Earth/Strategic Metals Index representing the global market. Results – The analysis for the entire period revealed a worse performance of investments in rare earth stocks than investment in risk-free assets. Only AREC outperformed other securities offering the best results for 3 of 6 ratios. To examine the stability of the results, the total investigation period was divided into 5 subperiods and all performance ratios were determined for each of them. A strong variation of results did not allow to recognise stable patterns. When the results for the entire investigation period were used as a benchmark, only MVREMX offered stable and attractive results of modified Sharpe ratio outperforming the five-year value in 4 out of 5 subperiods. Originality / value / implications / recommendations – This study provides a new insight into the rare earths sector regarding its growing international importance and the efficiency of investments into listed rare earth firms. The examination uses two-dimensional measures offering the advantage of simultaneously combining return and risk into a single performance number. The findings imply the necessity of improving the stock price performance to attract investors’ interest.