Uranium

uranium etf

Despite the market challenges of the past few years, ETF growth has hit new strides. More options are emerging for investors in the uranium space.

Exchange-traded funds (ETFs) are one of the fastest-growing investment vehicles. Offering diversity within a specific sector, ETFs have become popular since launching in 1993.

When the Dow Jones Industrial Average (INDEXDJX:DJI) broke its all-time high to hit 30,000 in late November 2020 and then blasted through 35,000 in late July 2021, a contributing factor was the growth of the SPDR Dow Jones Industrial Average ETF Trust (ARCA:DIA).

The ETF, which contains 31 blue chip stocks and US$29.5 billion in assets under management, also marked a record milestone, breaching US$356 per share in mid-August 2021. While DIA is only one large-scale ETF, its positive performance is indicative of the potential the broader ETF space holds.

Despite the coronavirus-related market challenges of the last few years, ETF growth has hit new strides. In fact, in the first six months of 2021, Canadian ETFs registered US$29.7 billion in inflows, up 35 percent from the same period in 2020. Notably, the increase continued a trend set in the same period of the previous year, when inflows more than double compared to the first half of 2019.

The North American ETF sector as a whole is expected to have an estimated US$5.9 trillion assets under management in 2021, according to one market research report.

“The ETF market has become increasingly crowded, particularly in North America,” reads the document released by Research and Markets. “The North American ETF market dominates in terms of sheer size, but it also continues to have significant momentum.”

Uranium ETFs: An emerging market

While gold ETFs are the most known and popular in the resource space, there are plenty of unique and niche ETFs to choose from. Uranium ETFs are lesser known, but still fairly mainstream.

Unlike gold, which offers dozens of ETF options, there are just four pure-play uranium ETFs in the space. The first, the VanEck Vectors Uranium + Nuclear Energy ETF (ARCA:NLR), launched in 2007 and tracks a market cap-weighted index of companies in the uranium industry.

The Global X Uranium ETF (ARCA:URA) also tracks a basket of miners, while the North Shore Global Uranium Mining ETF (ARCA:URNM) lists both producers and explorers for broader exposure.

The Horizons Global Uranium Index ETF (TSX:HURA), created in 2019, was the first pure-play uranium ETF in Canada. It provides exposure to the re-emerging growth in the uranium industry.

Containing 10 uranium companies, from sector leader Cameco (TSX:CCO,NYSE:CCJ) to emerging miners like NexGen Energy (TSX:NXE,NYSEAMERICAN:NXE), HURA offers wide exposure to the uranium market.

Although it’s not an ETF, the Sprott Physical Uranium Trust (TSX:U.UN) is also worth mentioning due to the status it’s gained as an alternate uranium investment. After launching in July 2021, it’s already made its mark on the space, stoking investor interest and prices for the commodity.

The trust can issue shares into the open market whenever it’s trading at a 1 percent or greater premium to its net asset value. Between August 17 and September 24 of this year, the trust issued shares into the market valued at over US$420 million and scooped up 10.3 million pounds of uranium.

“(Sprott is) just new to the scene, they really shook things up — I mean, nobody expected a 50 percent move in the uranium price based on the 10 million pounds they purchased. Nobody saw that coming,” Justin Huhn, founder and publisher of the Uranium Insider Pro newsletter, said in a recent interview.

Bloomberg notes that the trust’s uranium purchases are equal to roughly 16 percent of the annual consumption of the world’s nuclear industry; hence why its actions have had a significant impact on the recent gains in the uranium spot price.

Nick Piquard, a portfolio manager at Horizons ETFs, which owns the HURA ETF, told the news outlet that the Sprott trust’s buying spree has removed some of the excess uranium inventory that has been plaguing the market since the Fukushima nuclear disaster back in 2011.

Uranium ETFs: The impact of COVID-19

After three years of stagnation, the uranium spot price began to strengthen in 2020 in the face of COVID-19, even when commodities like gold and silver slumped.

Because COVID-19 created extreme market disruptions, the uranium industry did encounter some volatility. However, the supply and demand picture also improved for the sector and positively impacted fundamentals for uranium ETFs.

Industry insiders credit two factors for the resiliency in uranium prices: Cameco’s temporary shuttering of Cigar Lake and Kazatomprom’s  (LSE:KAP) production reduction.

There was concern that falling prices in the energy space, especially for oil, would carry over to the rest of the sector and weigh down uranium ETFs, but that clearly has not been the case. It should be noted that nuclear production is relatively steady compared to oil consumption, meaning the demand side of the equation is not as volatile as in other energy markets.

Uranium ETFs: Indicators point to growth

In September 2021, Bloomberg declared that “after languishing at historical lows for the better part of the last decade, uranium suddenly came back from the dead.”

In fact, the uranium spot price rallied 60 percent in the first four weeks of Q3 of this year to push past US$50 per pound for the first time since 2012. Market watchers have long pointed to the US$50 or US$60 level as the tipping point for reviving the long-beleaguered uranium industry. As of the end of September, the uranium spot price was still trading above US$44.

Whether prices will continue to strengthen is uncertain, especially in a market that is notoriously difficult to gauge. However, those with a positive view of the uranium market’s fundamentals think it will happen — supporting factors include the lack of new uranium mines coming online, the rising demand for low-carbon energy sources and the continued development and deployment of small modular reactors.

There is also increasing demand for uranium from China and India as both these countries grapple with air pollution in the face of growing electricity demand. China is working to expand its nuclear power capacity, and although it ranks among the top 10 uranium-producing countries, the Asian nation relies heavily on uranium imports to meet its nuclear fuel demand.

Globally, the World Nuclear Association projects that uranium demand will rise from 162 million pounds in 2021 to 206 million pounds in 2030, and then to 292 million pounds in 2040. The surge in demand is expected to occur alongside a 15 percent decline in uranium supply by 2025, and a 50 percent decline by 2030 due to a lack of investment in developing new uranium mines.

How does investment in uranium ETFs play into the future outlook for the uranium industry? According to Jonathan Hinze, president of nuclear fuel market research and analysis firm UxC, the participation in the physical uranium market by investment funds such as Sprott may be an important catalyst.

“It’s very possible this pickup in the spot market will be the catalyst to push more utilities to get in involved and get going on term contracting. That’s the piece that would be the next part of the cycle.”

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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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