Uranium occupies a fairly niche corner of the market that many investors aren’t too familiar with. However, the sector deserves more attention from investors now that uranium prices have reached their nuclear levels highest level in more than ten years, sending uranium stocks and ETFs soaring. The Sprott Uranium Miners ETF (NYSEARCA:URNM) is up 29.1% over the past month, while the GlobalNYSEARCA: CAREER) and the VanEck Uranium + Nuclear Energy ETF (NYSEARCA:NLR) have increased by 21.7% and 15.7% respectively over the same period.
Table of Contents
In this article, we will discuss why uranium prices are rising and why ETFs may be the right way to invest in uranium. We’ll also discuss how these three ETFs give investors exposure to the sector and whether or not they should be on investor watchlists in the future.
Uranium “goes nuclear”
At the end of last week, The Financial Times reported that uranium prices reached their highest level since 2011, “underscoring a global nuclear power renaissance as utilities rush to hold on to fuel supplies.” The increasing demand can be attributed to governments thinking about energy security as the Russian invasion of Ukraine has brought this issue into stark relief for many countries around the world.
At the same time, there is growing belief that nuclear energy can play a crucial role in reducing CO2 emissions and combating climate change, because nuclear energy is a clean, carbon-free source of baseload energy. Global As governments pledge to reduce dependence on fossil fuels, nuclear energy could be a viable bridge as more renewable capacity is built.”
The 2011 Fukushima nuclear accident in Japan had a chilling effect on the sector, resulting in little new production in the years that followed. So increased demand should continue to put upward pressure on uranium prices, given limited capacity for new production. supply until new projects come online in the coming years.
Why Uranium ETFs?
Uranium is a fairly obscure industry, and even the leading uranium stocks aren’t exactly household names known to most investors. Furthermore, many of these companies are located in different countries and are not listed on US stock exchanges, making them difficult to access for the average investor. In addition, not all uranium miners have projects that currently produce uranium, meaning the quality of these uranium deposits varies widely.
Finally, geopolitical risks are also of particular importance when investing in uranium. Niger, for example, is a major exporter of uranium, and the recent coup there has put importers on edge. Here’s another example. Earlier this year, Paladin Energy (OTC: PALAF) investors were shocked by news that the Namibian government might try to nationalize the country’s uranium mines.
These challenges mean that a basket approach and investing in the sector through diversified ETFs is likely a sensible strategy. That said, let’s take a look at three of the most prominent ETFs in the space.
With just over $2 billion in assets under management, the Global X Uranium ETF is the largest ETF in the sector. Global X describes it as “a targeted action on uranium mining and the production of nuclear components.”
URA owns 47 shares and the top 10 holdings account for 67.6% of assets. Below you can see an overview of URA’s top 10 holdings using TipRanks’ holdings tool.
As you can see, Cameco (NYSE:CCJ), the largest uranium stock by market capitalization, is by far URA’s largest position, with a 23.6% weighting within the fund. URA’s second largest holding company is the Sprott Physical Uranium Trust, which buys and holds physical uranium.
URA has an expense ratio of 0.69%, meaning an investor who puts $10,000 into the fund will pay $69 in fees during the first year. This is a relatively high expense ratio, but unfortunately for investors looking for targeted uranium exposure, the expense ratios for all of these ETFs are higher than those of typical broad market ETFs.
One thing to note is that URA is a dividend payer, although the 0.6% dividend yield is unlikely to attract dividend investors.
Finally, this ETF has been quietly performing strongly in recent years, with impressive double-digit annualized returns of 17.2% over the past year, 29.3% over the past three years, and 13.3% over the past five years. However, over the past ten years the fund has lost 1.6% annually.
With more than $1.2 billion in assets under management, the Sprott Uranium Miners ETF is another major ETF with a focus on uranium. Sprott is a household name in the commodities space, and this is the offering for uranium miners. URNM was previously known as the NorthShore Global Uranium Mining ETF before Sprott acquired the fund in 2022.
The Sprott ETF is less diversified than URA. The company owns 39 shares, and the top 10 holdings represent 75.6% of assets. Below you can see URNM’s top 10 holdings using TipRanks’ holdings tool.
Cameco and Kazatomprom (GB:CHAP), a major uranium producer from Kazakhstan, form the fund’s two largest holdings and together account for almost 30% of the fund’s assets.
URNM is slightly more expensive than URA, with a fairly high expense ratio of 0.83%. This means that an investor who commits $10,000 to URA will pay $83 in fees during the first year of investing in it. Unlike URA, URNM currently does not pay a dividend.
URNM underperformed URA over the last year, but has outperformed over the last three years, returning -1.4% over the last year, but a fantastic 36.0% annualized return over the last three years.
The VanEck Uranium + Nuclear Energy ETF is smaller than URA or URNM (with just over $100 million in AUM) and has a slightly different strategy than these two funds. Like URA and URNM, NLR invests in producers such as Cameco and Kazatomprom, but also owns utilities that use uranium for the production of nuclear energy, such as its largest holding Constellation Energy (NASDAQ:CEG), plus the five largest holding companies Public Service Enterprise (NYSE:PEG) and Pacific Gas & Electric (NYSE:PCG).
All in all, NLR has 28 positions and the top 10 positions account for 58.8% of the assets. Below you can view the top 10 NLR investments.
With an expense ratio of 0.61%, NLR has the lowest costs in this group of ETFs. The NLR dividend yield of 1.6% is also the highest within the group.
NLR has offered investors decent returns in recent years, with a return of 16.2% over the past year and an annualized return of 15.1% over the past three years. Over the longer term, the annualized returns of 6.9% and 6.8% over the past five and ten years are slightly less exciting, but still positive.
Adding it all up
Ultimately, all of these ETFs should continue to perform well if uranium prices continue to rise, which seems feasible given the factors discussed above. URA and URNM should have more upside potential as they offer more exposure to uranium miners and producers, while NLR is less pure play given its investments in utilities that bring a different kind of exposure into the mix. For this reason, URA and URNM currently seem more promising than NLR.
Between URA and URNM, both should do well if uranium prices remain high, but URA deserves a slight edge based on its lower expense ratio, longer track record, more diversified portfolio, and the fact that it pays a dividend, albeit a small one dividend.
To be clear, all of these investments carry a high degree of risk as uranium prices are volatile, and this is a niche part of the market. However, the short- and long-term trends look compelling, and investing through ETFs is a good way to diversify your uranium holdings and mitigate some of the risks.
Filmy One (FilmyOne.com) – Best Stocks to Watch
Disclaimer: Filmy One provides general information and opinions on finance, banking, and investments. The information provided on https://filmyone.com/ is not intended to be and should not be considered financial advice. Before making any financial decisions, you should seek advice from a professional financial advisor for personalized advice tailored to your situation. Filmy One Authors does not endorse any specific products, services, or providers. Moreover, the content of this website is not a guarantee of any particular outcome or result. Your use of information and/or services on this site is at your own risk, and you bear full responsibility for your financial decisions. Please read our full disclaimer for more information.