Nuclear energy has a bad reputation. Say “Chernobyl” or “Three Mile Island” and many remember dangerous and costly incidents that had negative effects for years to come.
But with the consequences of fossil fuels becoming more apparent every day, some are touting nuclear energy as a zero-emission clean energy source worth considering. And this change of heart has boosted assets and returns for nuclear energy ETFs over the past year.
On Tuesday alone, uranium-linked ETFs had an explosive day. The North Shore Global Uranium Mining ETF (URNM) rose by 13.5% while the Global X Uranium ETF (URA) gained 11.7%.
This rise adds to both funds’ strong gains over the trailing year. As with most thematic ETFs, there is considerable dispersion among the three ETFs that fall into the nuclear energy ETFs.
The two uranium ETFs have significantly outperformed the VanEck Uranium+Nuclear Energy ETF (NLR), which takes a wider view of the nuclear energy space.
URNM and URA have seen triple-digit gains in the past year, with URNM up 216%, while URA has gained 146%.
While both of these ETFs have been in a steady uptrend for much of the last year, they went nuclear in August and September. From Aug. 22 through Sept. 15, URNM gained more than 91%, while URA gained 61%. A look at how these different ETFs are constructed gives insights into the performance differences between these funds.
Looking Under The Hood
URNM tracks a market-cap-weighted index of global companies in the uranium industry, including those involved in mining, exploration, development and production. It also has exposure to companies that hold physical uranium, uranium royalties or other nonmining assets. The ETF rebalances quarterly.
One of the top holdings is Sprott Physical Uranium Trust, making up 8% of the portfolio. Sprott made headlines this summer by going on a buying spree in the uranium spot market. The firm increased its holdings by 45% in four weeks, driving up the price of the radioactive metal by 65% in the span of a month.
Chart courtesy of FactSet
URNM’s two largest holdings have also had strong performance over the past year. The National Atomic Company Kazatomprom is up 183%, while Cameco Corporation has gained 152%. Both of these companies are uranium miners and saw their stock prices surge on increased demand.
Chart courtesy of FactSet
URA’s portfolio includes a smaller weighting to National Atomic Company Kazatomprom and a larger weighting to Cameco. This ETF is cap weighted as well, with semiannual reconstitution, and does not offer any exposure to physical uranium.
Different Takes On The Same Space
As seen with our ETF Comparison Tool, URA’s portfolio offers a little more diversification at a cheaper price. URA is 16 basis points cheaper than URNM and has a smaller average spread.
Chart courtesy of FactSet
The fund also has more holdings and more sector diversification, with exposure to industrials and utilities that URNM lacks. However, both funds are still highly concentrated and vulnerable to industry risk.
Chart courtesy of FactSet
Reddit-Fueled Rally
Along with the organic supply and demand forces driving prices, uranium mining companies also caught the attention of Reddit, adding fuel to the fire in their exponential rise. Reddit has driven several “meme stock” rallies this year, beginning with GameStop in January.
And while uranium has cooled from highs reached during this Reddit-driven rally, there are signs that gains for these ETFs have not yet reached their half-life.
The Biden administration has argued for the creation of a government-funded uranium reserve to help achieve its clean energy goals. This idea had also been supported by President Trump, including the allocation of $75 million in funding toward the goal included in last December’s COVID relief bill.
Currently, U.S. power plants import more than 90% of their uranium from foreign sources, including Kazakhstan and Russia, which some feel is a national security risk.
As with many other commodities, producers are likely to increase supply in response to rising prices.
However, this increase in supply will take time to become available. Renewed interest in nuclear energy, both domestically and abroad, could drive continued demand going forward. This combination of forces could prove to be explosive for the yellow metal going forward.
Contact Jessica Ferringer at jessica.ferringer@etf.com or follow her on Twitter
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