Some of 2023’s hottest trades have included tech stocks, crypto, AI, and… uranium? It certainly hasn’t received as much coverage as the others, but uranium prices are quietly up more than 50% year-to-date, hitting their highest level since 2008. Even after this torrid performance, uranium continues to look attractive for the future based on long-term demand for nuclear power, the supply and demand dynamics of the industry, and improving sentiment toward nuclear power.
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I’m bullish on uranium for the long term, and the Global X Uranium ETF (NYSEARCA:URA) is an effective and convenient way to invest in this theme.
What is the URA ETF’s Strategy?
Global X explains that URA “provides investors access to a broad range of companies involved in uranium mining and the production of nuclear components, including those in extraction, refining, exploration, or manufacturing of equipment for the uranium and nuclear industries.” It invests in an index called the Solactive Global Uranium & Nuclear Components Total Return Index.
Why Does Uranium Look Attractive Over the Long Term?
There will likely be periods of volatility in the short term, but the setup for uranium over the long term looks promising. As the world increasingly focuses on electrification and decarbonization with the goal of reducing carbon emissions, there is growing sentiment that nuclear energy has an important role to play as a safe, clean, and reliable energy source that will help the world reach these decarbonization goals.
There are currently 437 nuclear reactors operating worldwide, and there are 58 new reactors under construction globally, which will increase demand for uranium, going forward. Many of these reactors are being built in places like China, India, other Asian countries, and various African countries. This is particularly promising, considering that many of these countries are experiencing population growth, which will likely lead to an increased demand for energy in the coming years.
The current supply is not sufficient to keep up with future demand. UxC, a firm that researches and analyzes the uranium market, forecasts that there are uncovered requirements of approximately 2.3 billion pounds of uranium through 2040.
All of this adds up to paint a compelling picture for uranium producers going forward, making these companies and the URA ETF attractive long-term bets.
URA’s Holdings
URA holds 47 stocks from across the uranium sector, and its top 10 holdings account for 69.9% of the fund. Below, you’ll find an overview of URA’s top 10 holdings from TipRanks’ ETF holdings tool.
URA’s holdings leave no stone unturned in covering a broad cross-section of the uranium sector globally. The top holding is Cameco (TSE:CCO), a Canadian company that is involved in all aspects of uranium production, from exploring and mining to refining it. Cameco is one of the world’s largest uranium producers, with operations in Canada, the United States, Kazakhstan, and Australia. Cameco currently accounts for nearly one-quarter of URA’s assets.
The Sprott Physical Uranium Trust (TSE:U.UN) is another prominent holding. This is a fund that buys and holds physical uranium, much like funds that buy and hold physical silver or physical gold.
Other key holdings include Kazatomprom (LSE:KAP), which is based in Kazakhstan and is the world’s largest producer of uranium, Canada’s Nexgen Energy (NYSE:NXE), and Denison Mines (TSE:DML), Australia’s Boss Energy (ASX:BOE), Paladin Energy (ASX:PDN), and the U.S.’s Energy Fuels Inc. (NYSE:UUUU).
Cameco, Paladin Energy, and Boss Energy all feature ‘Perfect 10’ Smart Scores. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating.
What I really like about URA is that many of the smaller international uranium stocks are difficult to gain exposure to as a U.S. investor as they often aren’t available in all brokerages, and URA gives you exposure to all of them in a convenient and efficient manner.
Long-Term Performance
URA has been a very strong performer in recent years. The fund is up 37.3% over the past year. It has also generated a phenomenal three-year annualized return of 38.7% as of October 31st. Going out to five years, URA has posted an impressive annualized return of 20.0%.
Over the past 10 years, its annualized return is a more pedestrian 1.8%, but the tides clearly seem to be trending towards more compelling results in recent times.
What to Make of URA’s High Expense Ratio
In terms of fees, URA is a bit on the higher side, with an expense ratio of 0.69%. This means that an investor allocating $10,000 into the fund would pay $69 in fees during their first year of investing in it. Over the course of 10 years, assuming the expense ratio remains 0.69% and the fund returns 5% a year going forward, this same investor would pay $859 in fees over the course of the decade.
However, based on URA’s red-hot performance in recent years, it can reasonably make a claim that these fees are justified. Furthermore, as discussed above, many of the smaller international stocks that it invests in are difficult for U.S. investors to gain exposure to on their own, meaning that the expense ratio could be worth it.
Lastly, URA’s expense ratio isn’t out of line when looking at some of its peers among uranium ETFs. For example, the Sprott Uranium Miners ETF (NYSEARCA:URNM) has an expense ratio of 0.83% and the VanEck Uranium + Nuclear Energy ETF (NYSEARCA:NLR) features an expense ratio of 0.61%.
Below, you can check out a comparison of the fees of URA, URNM, and NLR (as well as other criteria) using TipRanks’ ETF Comparison Tool, which enables investors to compare up to 20 ETFs at a time based on a variety of customizable factors.
Looking Ahead
Looking ahead, uranium’s future looks bright based on the growing sentiment that uranium is part of the solution for reducing carbon emissions. Factors contributing to this positive outlook include escalating demand for nuclear energy, the construction and activation of new nuclear reactors, and the persistent long-term shortfall in uranium supply.
The URA ETF is an attractive way to gain exposure to this long-term theme because it gives investors exposure to a wide-ranging, all-encompassing group of uranium companies from around the world. It has generated excellent returns in recent years and looks well-poised for the future. While its expense ratio is on the higher end, it is comparable to its peers, and it gives investors exposure to parts of the market that would be difficult to access otherwise.
