Uranium-oriented exchange-traded funds (ETFs) are certainly exotic financial instruments which even many experienced investors have never once considered. If you are one of them, and you are wondering whether a uranium ETF should have a place in your portfolio, please read on: we will first give you a quick introduction to uranium itself, followed by the main arguments concerning an investment in uranium and finally a quick look at the two available uranium ETFs on the market.
Uranium – a Rare Commodity
Uranium is a radioactive metal which is mined mainly for its use as a fuel in nuclear power plants worldwide. While there are other special uses for this material -both civilian and military-, power generation is the only use which drives the production capacities and thus the price of uranium.
The largest producer is Kazakhstan at a little over one quarter of worldwide supply, followed by Canada, Australia and Namibia. Uranium is not traded on an exchange like most other commodities, but is rather sold and bought in private deals between producers and users. Consequently, no future-based or even physical uranium ETFs exist, and both relevant ETFs mentioned below are stock-based.
Investing In Uranium
Predicting the future price of a commodity with any accuracy is always difficult at best. With uranium, the turbulent history of nuclear power generation adds another level of uncertainty. However, it seems unlikely that nuclear power will disappear anytime soon. For example, Japan remains strongly dependent on nuclear energy even after the 2011 disaster, while Russia, China and India are aggressively expanding their nuclear power generation capacities. With many reactors currently under construction, it is unlikely that demand will decrease significantly in the near-term.
The supply of uranium has remained flat over recent years, as not many exploration projects have been carried out until recently. With less than 15 uranium suppliers worldwide, large near-term increases in production capacity are unlikely.
On the other hand, power plants need uranium for operation, and since fuel costs make up a very small part of their overall energy production costs, the price of uranium is not their major concern, as long as the supply can be guaranteed.
Specific Uranium ETFs
Two ETFs with exposure to uranium and the nuclear industry are currently listed on U.S. exchanges and make up the whole uranium ETF list:
- The Global X Uranium ETF issued by Global X (Symbol: URA) tracks an index composed of 24 companies worldwide which are active in mining, exploration and processing of uranium as well as in manufacturing supplies for this industry. More than half of these companies are based in Canada, with the rest dominated by Australian and U.S. firms, making this a true global uranium ETF. Started in November 2010, it is the only ETF on the market with a pure focus on uranium.
- The Market Vectors Uranium+Nuclear Energy ETF issued by Van Eck Associates (Symbol: NLR) tracks the DAXglobal Nuclear Energy Index. Its holdings contain 23 securities of companies worldwide with their focus on the nuclear energy industry. While it is thus not a pure uranium stocks ETF, its exposure is broader than URA’s. The regional distribution of these companies is very evenly allocated, with the U.S. and Canada making up over 50%, Japan 25% and Europe and Australia the rest.