Global X Uranium ETF (URA) is an exchange traded fund managed by Global X Management Company.
The fund seeks to invest in public companies with the goal of matching the price & yield performance of the Solactive Global Uranium & Nuclear Components Total Return Index. I am bullish on the ETF.
Uranium and Nuclear Energy
Uranium’s use in nuclear energy is what’s spurring on the current price movement. Global X’s Uranium ETF has gained over 120% during the past year, as a push towards decarbonization has accelerated immensely.
Although many western nations disregard nuclear energy, China isn’t doubting its application at all, and has 49 operational nuclear power facilities, and 17 under construction. A further 100 are anticipated to be constructed before 2035.
The preconception about nuclear power is that it’s dangerous and expensive.
Barclays (BCS) addressed these perceived safety concerns stating that, “Advanced nuclear reactors and proposed small modular reactors do not rely on power to drive safety systems. Instead, they depend on the laws of physics (gravity, convection, heat transfer) to protect the core in the event of an accident. These designs should provide even better safety statistics than the historical comparables.”
Nuclear power even provides more efficient waste management solutions to other renewable sources. It also doesn’t rely on seasonality, nor does it need any storage units, making for a more effective model overall.
In terms of cost outlay, one needs to emphasize the horizon. Nuclear energy plants are costly to construct, but their operating costs are cheap, and they challenge fossil fuel sources.
The OECD Nuclear Energy Agency did a study and concluded that nuclear energy running costs are elastic with discount rates (costs of capital determined by a project’s lifecycle).
The study found that at a discount rate of 3%, nuclear energy is the lowest cost of energy; at 7%, its median cost is close to the median cost of coal energy; and at 10%, it becomes a significantly more expensive source of energy relative to non-renewables.
The ETF’s Idiosyncrasies
Uranium stocks are still risky bets, and this ETF is none less so, with a standard deviation that’s 129.3% higher than an average ETF, and volatility of 123.6% more than an average ETF.
Its recent popularity is however undoubted. In the last six months, it has received 714.4% more inflow than the average ETF, while trading at a 200 day moving average of 18.97, a near 42% rise.
Finally, this ETF presents investors with de-risked exposure to Cameco Corp (CCJ), the world’s largest uranium producer. Cameco makes up for 22.49% of the ETF, and trades at an expected three-to-five year EPS CAGR of 65%.
If Cameco ends up producing such returns, its stock price would skyrocket, and Global X Uranium would benefit as a consequence. Growth investors are aware of Cameco’s prospects, but gaining exposure to the stock via a diversified ETF provides superior risk-return utility.
Uranium is a hot topic of conversation due to nuclear energy prospects. Barclays removes the thought that nuclear energy is dangerous, and an OECD study suggests that its running costs are less expensive than current energy options, if the discount rates are low enough.
Global X Uranium ETF provides substantial exposure to uranium companies, with 65% of the funds invested in uranium-related stocks, including industry leader Cameco Corp.
It’s a risky asset to buy, with the potential of a high payoff.
Disclosure: At the time of publication, Steve Gray Booyens had a long position in Global X Uranium ETF.
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