An ETF, or exchange-traded fund in full, enables an investor to buy a collection of several companies’ stocks or bonds at a go. Such an investor will buy a number of shares of these ETFs through their broker, which is in turn divided among stocks of different companies by known proportions. They earn dividends and profits as long as the collection of shares they are invested in remains profitable. For instance, if you purchase an S&P 500 ETF, you’re effectively investing in all the 500 companies contained in that index.
Pros of ETFs
- They allow investors to get exposure on a wide variety of stocks, bonds, or other financial assets, all at a small fee.
- They offer a more secure investment avenue than betting on the stock of one single company. Effectively, the investor invests in a specific market, whose performance is much easier to predict over time.
- Bond ETFs help investors yield steady gains over time, which is much easier than investing in an individual bond.
Cons of ETFs
- Though they are less risky than buying an individual company’s stock, they offer a much-reduced return margin in comparison.
- The cost of investing in them is low, but management fees are always charged. If instead, one were to create the same portfolio by separately investing in the individual companies contained in the ETF, they wouldn’t have to pay the management fees.
History of uranium prices
Uranium is a radioactive element naturally found in several regions of the world. It is used as a raw material for nuclear fission, which is capable of producing vast amounts of electricity from trace amounts of the mineral. In fact, a pellet of uranium is capable of producing as much electricity as three barrels of oil, 17,000 cubic feet of natural gas, or a metric ton of coal. What’s more, this nuclear energy produces no harmful emissions, unlike the aforementioned fossil fuels.
Historically, uranium was used to color household items such as cutlery. Nowadays, it is mainly used in nuclear power plants to generate electricity. It also has military applications such as powering submarines and nuclear missiles.
In 2011, a nuclear power plant in Fukushima, Japan, was plagued by a terrible earthquake that led to a tsunami. This resulting effect was a nuclear disaster on the scale of the Chernobyl accident. The plant’s nuclear reactors melted down, and radioactive water was discharged into the environment, rendering the area uninhabitable.
The disaster prompted Japan to halt almost all of its nuclear power production, and other countries soon followed suit. This caused a dramatic drop in global uranium prices. To date, Australia, which has the largest uranium deposits globally, continues to exert a ban on nuclear power production.
Recently, however, with the natural gas shortage and the emphasis on green energy sources, more and more countries are turning towards nuclear power as an alternate energy source. US president Biden signed the infrastructure bill into law, which set aside billions of dollars to develop nuclear power plants in the country. The European Commission is also pushing towards the adoption of nuclear power in their continent.
Elsewhere, in Kazakhstan, political unrest has halted the country’s uranium mining efforts. Seeing as the country was the largest uranium producer, it has caused a supply bottleneck which has seen uranium prices rally steadily as its demand grows. Over the past year, these prices have grown by more than 40%, and investors are looking for ways to get in on this wave. With that backdrop, let’s look at the best uranium ETFs to invest in.
Top uranium ETFs
1. Global X Uranium ETF (URA)
URA is currently the largest uranium ETF in the market. It consists of 45 stocks ranging from mining companies, refiners, and manufacturers of equipment for mining mineral and nuclear energy production. Cameco, one of the largest uranium producers in the world, makes up almost a quarter of URA’s portfolio. The top 5 holdings, one of which is Kazatomprom, the largest producer of the radioactive mineral, make up the majority of URA’s assets.
This ETF is also comprised of firms from different countries. Canadian firms make up half the portfolio, Australian firms make up 11% of it, while firms from Kazakhstan comprise 9% of the net assets. American firms contribute about 5% of the portfolio.
2. North Shore Global Uranium Mining ETF (URNM)
The URNM ETF is mainly comprised of uranium mining companies, as well as companies that hold the physical mineral. Its portfolio consists of 35 companies from all over the globe. Cameco and Kazatomprom, the two uranium mining giants, make up 14.9% and 13.3% of the portfolio, respectively. The third-largest asset is the Sprott Physical Uranium Trust, which holds the physical element. Other notable holdings are Paladin Energy of Australia, which produces uranium, and Yellow Cake of the Channel Islands, which deals in uranium oxide.
3. VanEck Uranium and Nuclear Energy ETF (NLR)
On paper, the NLR fund claims to invest in uranium mining companies, builders of nuclear facilities, nuclear power companies, and associated firms. Looking at the 24 holdings comprising the ETF, however, 87% of them are utility stocks. A good example of these is Duke Energy, Exelon, and Dominion Energy, which produce electricity from a total of 27 nuclear plants. Their business model is thus not well set up to benefit from uranium price rallies like mining companies usually are.
To put this in context, URA’s yield in 2021 was an approximate gain of 72%, while URNM gained 97%. NLR, on the other hand, only recorded a 12.5% annual gain.
Exchange-traded funds offer investors an easy way to invest in a wide range of companies, which presents less risk than investing in an individual company’s stock. With the growing global demand for uranium, coupled with the shortage of supply caused by unrest in the world’s leading uranium producer, uranium prices are only expected to keep rising. For that reason, uranium ETFs present an attractive, low-risk opportunity for investors the world over.