Finally, an ETF that actually provides the Uranium exposure contrarian investors are looking for. A recent Seeking Alpha Article highlights the opportunity presented by the North Shore Uranium ETF(URNM). In addition to summarizing the macro case for uranium, the article discusses the gap that existed in the market for US based investors.
The global macro case for a uranium ETF
It all comes down to supply and demand. There has been practically no investment in no mines over the past decade. With prices so absurdly low, large mining companies haven’t bothered to find new resources. Junior miners have been unable to get funded. In the last couple years, some large mining companies have actually been net buyers of uranium because they find it more cost effective to buy uranium on the spot market to meet contract needs. The current price of uranium is below the marginal cost, so if they extract new resources they lose money. Obviously this is unsustainable.
On the demand side, there is a major misconception in developed markets. Most people in the US think nuclear is a dying industry. But the reality is its growing rapidly in the emerging markets. The demand growth from China alone is enough to build a bull case for uranium. Other emerging markets are also adding uranium capacity. Additionally, the developed world isn’t abandoning uranium as fast as a lot of people think it is. Japan is starting to restart some of its nuclear reactors. Europe is discovering it can’t meet clean energy goals without uranium. Collapsed supply and rising demand create the bull case for uranium.
New uranium ETF strategy
Prior to the launch of URNM, most US listed uranium ETFs weren’t really pure play uranium ETFs. URNM is filling this gap:
US based investors have had minimal ETF options to get direct exposure to the uranium space. Global X Uranium ETF (URA) follows a benchmark that contains a large portion of utilities. Its rebalancing away from a pure uranium focused portfolio was actually a major source of selling in 2018. The Horizons Global Uranium Index ETF (TSX: HURA) launched in Canada, but it currently has limited liquidity with only ~$5 million in net assets. Additionally, TSX listed shares may be inconvenient for US based investors. Fortunately, a pure play uranium ETF is finally launching in the US. North Shore Global Uranium Mining ETF (NYSEARCA:URNM) is expected to begin trading on December 4. It will trade on NYSE ARCA, hopefully attracting higher volume than HURA. The new availability of this ETF might also itself become a driver of interest in the uranium space.
Here is the summary of URNM’s weighting methodology:
This new ETF is as close to a pure play ETF as is possible given the reduced size of the out of favor uranium sector. The holdings and methodology are similar to the Canada listed HURA, but according to the article, URNM might have a better way of dealing with liquidity issues when the boom finally comes.
This new ETF is as close to a pure play ETF as is possible given the reduced size of the out of favor uranium sector. The holdings and methodology are similar to the Canada listed HURA, but according to the article, URNM might have a better way of dealing with liquidity issues when the boom finally comes. Although more sophisticated investors might prefer to invest in specialist hedge funds, many retail investors might find URNM to be a good way to get uranium exposure. Additionally, generalist fund managers can use URNM to add uranium to their portfolio, without needing to deal with single company risk.