Energy ETFs but with a “Nuclear” Setup
Uranium and nuclear energy were in the spotlight for the most part of the year. The bullish performance was slowed down by lower demand and lesser supply disruption than previously anticipated. Learn more on how to play the nuclear game with Nuclear Energy ETFs.
What do Kazakhstan and Canada have in common? Not much besides being the top two uranium producers in the world. They are bound to benefit from any favorable price movement in the reactive metal markets.
Uranium futures have been steadily trading above USD$40 per pound since October last year. It benefitted investors of all sorts while gaining 51.8% YTD amid sustainable finance inclusion talks and supply-demand imbalances.
Price appreciation resulted from a rejuvenated global search for alternative energy sources. Since the beginning of 2022, however, fears of potential supply disruptions and a higher demand outlook became a hot topic. A small demonstration in Kazakhstan, the world’s largest uranium producer, over fuel prices triggered a nationwide protest movement that raged against three decades of rule. The country was rocked by three cascading events: anti-government protests, an attempted palace coup, and an armed insurrection led by well-trained mercenaries in the country’s commercial capital. Political unrest puzzled miners and investors. It even triggered concerns that uranium production could be interrupted. This enticed physical uranium funds to ramp up their stocks driving prices even higher. The Sprott Physical Uranium Trust, which holds 44.88 million pounds, added 500,000 pounds on February 10th after having added 3.6 million pounds in 2022 alone.
Uranium market showing signs of slowing down
The recent performance of uranium was slowed down by a fall in prices amid lower demand and eased concerns of supply shortages. Fears of interrupted production in Kazakhstan faded after political turmoil did not affect Uranium operations and its corresponding supply chain, as investors previously anticipated. On another front, several member countries of the European Union opposed including nuclear energy in the “sustainable finance” section under the “green” label. The EU Platform on Sustainable Finance found that the proposed taxonomy’s requirement for investment targets to “do no significant harm” to the environment would not be met, due to the involvement of toxic waste that cannot be reused or recycled. The purpose of the taxonomy is to identify investment targets that contribute to 2030 and 2050 climate goals. The platform believes that new nuclear plants that receive a building permit around 2045 will not play a role in meeting the targets due to their long construction timelines.
Even more recently, Cameco, North America’s largest uranium producer, said the demand for uranium is not as strong as the spot market points to, and that the company would not increase the production. The Canadian firm’s CEO Tim Gitzel added on an analyst call that they won’t crank up production of the radioactive metal to chase what he called “mythical” market demand.
Nuclear Energy ETFs
Humans have polluted their planet since the first industrial revolution using fossil fuel to power their homes, factories and means of transportation. Climate change was just nature's way to pay for it. As guilt built up and societies became environmentally conscious, the world began to embrace alternative energy. Nuclear energy is a theme that falls under the Alternative Energy trend capturing the investment opportunity in the Technology Innovation megatrend. Learn more about thematic investing here.
Along with oil, coal, and natural gas ETFs, nuclear energy ETFs offer investors an additional way to play the energy sector. These funds invest in stocks of companies involved in uranium mining, nuclear components production, and utility companies that produce electricity from nuclear sources.
The NEO ETF Screener identifies one nuclear energy ETF, the Horizons Global Uranium Index ETF (HURA), which has CAD$50 million in AUM while managing to attract CAD$1 million of investors’ capital YTD.
Horizons Global Uranium Index ETF (HURA)
The Horizons Global Uranium Index ETF (HURA) was released to the market on May 16th, 2019. It is Canada’s only nuclear energy ETF. This passively managed fund aims to reflect the performance of the Solactive Global Uranium Pure-Play Index. It gives investors exposure to companies primarily involved in the uranium mining and exploration industry, and issuers that invest and participate directly in the physical price of uranium. The fund is globally diversified across several countries such as Canada, Kazakhstan, United Kingdom, and others. This ETF invests most of its assets in the energy sector followed by the industrials sector. Concentration risk is often a factor in small sector and thematic ETFs, and that's certainly the case for HURA. Only three holdings constitute more than 60% of the fund’s assets. Kazakhstan’s Kazatomprom makes up nearly one-fifth of the uranium ETF's assets with 20.62%, followed by Canada’s Cameco Corp with 20.01%, and United Kingdom’s Yellow Cake with 19.11%. HURA costs 0.85% to own and exhibits -0.79% tracking error. The ETF charges 0.45% (plus applicable sales tax) in management fees.
