The global race for technological supremacy is no longer just about software or silicon. It is being fought deep within the periodic table. From permanent magnets in electric-vehicle motors, wind turbines and robots to phosphors used in sensors, displays and other optical technologies, the modern economy increasingly depends on elements unfamiliar to most consumers, said Urs Gmür, fund manager at Active Niche Funds.

Based in Switzerland, the firm manages more than $350 million across its portfolios, including the Rare Earth Elements Fund, or REEF, whose mandate now extends to critical raw materials more broadly.

Europe has mineral resources and processing expertise, but meeting its autonomy targets will require faster permitting, new investment and economically viable recycling.

Six forces driving critical-material demand

Critical raw materials (CRMs) are defined by two primary factors: their high industrial importance and their significant supply risk (see chart 1). “Gold is not critical. Copper is important not only to the new economy but also to the old economy,” Gmür said in a video interview on 23 July 2026.

Among the most important are the rare-earth elements: the 15 lanthanides, together with scandium and yttrium. Their magnetic, optical and luminescent properties make them difficult to replace in many applications.

Rare earths and other critical raw materials underpin six long-term demand drivers: electrification, renewable energy, energy storage, AI data centres, robotics, and global rearmament. Despite their name, many rare-earth elements are relatively abundant in the Earth’s crust. The challenge is finding economically viable deposits and separating chemically similar elements at the purity required for advanced applications.

Europe cannot resolve supply insecurity simply through material substitution. According to the USGS’s Mineral Commodity Summaries 2026, manganese has no satisfactory substitute in its major applications. Rare-earth substitutes are generally less effective, while replacing cobalt or tungsten can reduce performance or raise costs.

Breaking China’s supply-chain dominance

For decades, China has positioned itself as the world’s dominant force in the strategic metals sector. While the extraction of ores is somewhat geographically dispersed, China dominates the midstream stages of the value chain, particularly separation and refining (see Chart 2).

This concentration of power has led to comparisons with the Middle East’s influence over oil in the 1970s. China’s expanding use of export licensing and controls on dual-use materials has underscored the vulnerability of Western industries.

The USGS reported that China expanded its export-control regime in three stages during 2025: controls affecting five metals in February, seven rare-earth elements and related products in April, and five additional rare-earth elements in October. Their strategic importance became clear when China agreed to suspend the measures announced in October 2025 for one year. The restrictions introduced in April remain in force.

Europe’s roadmap to resource autonomy

If China’s dominance defines the problem, the Critical Raw Materials Act, adopted in 2024, represents Europe’s attempt to strengthen supply-chain resilience and reduce excessive dependence on individual suppliers.

The regulation sets ambitious benchmarks for 2030, targeting at least 10% extraction, 40% processing, and 25% recycling within the EU’s own borders. Furthermore, the EU aims to ensure that no more than 65% of the EU’s annual consumption of each strategic raw material at any relevant stage of processing should come from a single third country.

“These benchmarks cannot realistically be met for every critical material,” Gmür said. Achieving these targets will require a massive scale-up of European industrial capacity and a streamlined approach to permitting, which historically has been a major bottleneck for mining projects.

Europe's hidden mineral wealth

Europe is far from a barren wasteland when it comes to these strategic resources; it possesses significant identified mineral resources, although many remain undeveloped or have yet to demonstrate commercial viability. Countries like Norway, Finland, Spain, Sweden, and Portugal have significant potential, while Greenland is described by Gmür as a literal “mine of gold” for strategic minerals (see Chart 3).

Gmür argued that Ukraine possesses critical-mineral resources, but that many are not concentrated enough to be economically attractive. In his view, some public claims about their value have been politically overstated.

The fund manager believes the EU’s processing benchmark is achievable given Europe’s technical expertise, although progress will depend on project economics, permitting, financing and public acceptance.

He cited Solvay’s rare-earth separation facility at La Rochelle, France, and Neo Performance Materials’ operations in Estonia. He was less confident about the recycling benchmark, citing the limited economies of scale involved in recovering small quantities of critical materials from electronic devices.

Digging for value in under-owned sectors

“The starting point is to develop a view of supply-and-demand dynamics on the underlying commodities,” Gmür said. “But we are not scientists.” The firm therefore regularly consults a geology professor at the University of Lausanne. In the case of tungsten, the professor confirmed the fund’s assessment that rising defence demand was contributing to a tighter market and higher prices.

More generally, Gmür argued that the sector has entered a secular bull trend after nearly 20 years of cyclical volatility (see Chart 4). Moreover, he suggested that the sector receives relatively little dedicated analyst coverage and remains under-owned by institutional investors, potentially creating opportunities for specialist investors who can navigate the complexities of the value chain.

Finding value before the market does

Because the fund cannot invest directly in commodities, its research often begins with listed mining companies before moving downstream to processors and refiners, Gmür said. He argued that companies can trade at substantial discounts before investors recognize the strategic importance of their principal commodity, potentially leading to sharp share-price gains. “It’s only possible because this market is highly inefficient,” he said.

The firm compares REEF’s performance with that of the VanEck Rare Earth and Strategic Metals ETF, an investable product offering broadly similar exposure (see Chart 5). The fund is domiciled in Switzerland and is denominated in Swiss francs. European investors can also obtain exposure through a euro-denominated tracker issued by Opus – Chartered Issuances, a Luxembourg-domiciled vehicle.

For investors, the opportunity rests on a structural imbalance: demand is expanding faster than diversified supply. Yet converting geological potential into returns will depend on permitting, financing, processing capacity and commodity prices—risks that make specialist knowledge as important as the underlying resources.