Uranium occupies a fairly niche corner of the market that many investors are not overly familiar with. However, the sector warrants more investor attention as uranium prices have gone nuclear, reaching their highest levels in over a decade, causing uranium stocks and ETFs to surge. The Sprott Uranium Miners ETF (NYSEARCA:URNM) is up 29.1% in just the past month, while the Global X Uranium ETF (NYSEARCA:URA) and the VanEck Uranium + Nuclear Energy ETF (NYSEARCA:NLR) are up 21.7% and 15.7% respectively over the same time frame.
In this article, we’ll talk about why uranium prices are on the rise and why ETFs could be the right way to approach investing in uranium. We’ll also discuss how these three ETFs give investors exposure to the sector and whether or not they should be on investors’ watchlists, going forward.
Uranium “Goes Nuclear”
Late last week, The Financial Times reported that uranium prices hit their highest level since 2011, “underlining a global renaissance in nuclear power as utilities race to lock in fuel supplies.” The increasing demand can be attributed to governments contemplating energy security as Russia’s Ukraine invasion brought this issue into stark relief for many countries around the world.
At the same time, there is a growing belief that nuclear power can play a vital role in reducing carbon emissions and fighting climate change because nuclear energy is a clean, carbon-free source of baseload power. Global X, the fund sponsor for URA, says, “Nuclear power emits zero direct emissions during operations. As governments pledge to reduce fossil fuel reliance, nuclear (power) could be a viable bridge while more renewable capacity is built.”
The Fukushima nuclear accident in Japan in 2011 had a chilling effect on the sector, resulting in little new production coming online in the years that followed, so increased demand should continue to cause upward pressure on the price of uranium, given the limited capacity for new supply until new projects come online in the years to come.
Why Uranium ETFs?
Uranium is a fairly obscure industry, and even the leading uranium stocks aren’t exactly household names that are familiar to most investors. Furthermore, many of these companies are in different countries and not listed on U.S. exchanges, making them difficult to access for the average investor. Additionally, not all uranium miners have projects that are currently producing uranium, so the quality of these uranium stocks varies widely.
Lastly, geopolitical risks are also of particular concern when investing in uranium. For example, Niger is a major exporter of uranium, and the recent coup there has importers on edge. Here’s another example. Earlier this year, Paladin Energy (OTC:PALAF) investors were rattled by news that the Namibian government may try to nationalize the country’s uranium mines.
These challenges mean that taking a basket approach and investing in the space through diversified ETFs is likely a sensible strategy. With 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 space. Global X describes it as “a targeted play on uranium mining and the production of nuclear components.”
URA owns 47 stocks, and its top 10 holdings account for 67.6% of assets. Below, you can check out 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 cap, is by far URA’s largest position, with a 23.6% weighting within the fund. URA’s second-largest holding is the Sprott Physical Uranium Trust, which buys and holds physical uranium.
URA has an expense ratio of 0.69%, which means that an investor putting $10,000 into the fund will pay $69 in expenses during year one. 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 its dividend yield of 0.6% is unlikely to attract dividend investors.
Finally, this ETF has quietly been a strong performer 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 10 years, the fund has lost 1.6% on an annualized basis.
With over $1.2 billion in assets under management, the Sprott Uranium Miners ETF is another major ETF with a uranium focus. Sprott is a well-known name in the commodities space, and this is its 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. It holds 39 stocks, and its top 10 holdings make up 75.6% of assets. Below, you can take a look at URNM’s top 10 holdings using TipRanks’ holdings tool.
Cameco and Kazatomprom (GB:KAP), a major uranium producer from Kazakhstan, are the fund’s top two holdings, and they combine to make up nearly 30% of the fund’s assets.
URNM is a bit more expensive than URA, with a fairly high expense ratio of 0.83%. This means that an investor allocating $10,000 to URA will pay $83 in fees during the first year of investing in it. Unlike URA, URNM does not currently pay a dividend.
URNM has lagged URA over the past year but outperformed it over the past three years, with a return of -1.4% over the past year but a stellar 36.0% annualized return over the past 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 like Cameco and Kazatomprom, but it also owns utilities that use uranium to produce nuclear energy, like its largest holding, Constellation Energy (NASDAQ:CEG), plus top five holdings Public Service Enterprise (NYSE:PEG) and Pacific Gas & Electric (NYSE:PCG).
All told, NLR has 28 positions, and its top 10 holdings account for 58.8% of assets. You can check out NLR”s top 10 holdings below.
With an expense ratio of 0.61%, NLR has the lowest fees in this group of ETFs. NLR’s dividend yield of 1.6% is also the highest within the group.
NLR has offered investors decent returns over the last few years, with a 16.2% return over the past year and a 15.1% annualized return over the past three years. Longer-term, its annualized returns of 6.9% and 6.8% over the past five and 10 years are a bit 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 of a pure-play, given its investments in utilities that bring a different type of exposure into the mix. For this reason, URA and URNM look more promising than NLR at this point in time.
Between URA and URNM, both should do well if uranium prices remain strong, 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.
To be clear, all of these investments involve a high degree of risk, as uranium prices are volatile, and this is a niche part of the market. However, the short-term and long-term trends look compelling, and investing through ETFs is a good way to diversify one’s uranium holdings and mitigate some of the risks.