Russia’s invasion of Ukraine could accelerate uranium’s growing importance.
Russia does not comprise a huge portion of the world’s uranium production, ranked sixth among uranium-producing countries in 2021, and representing roughly 6% of mined uranium, according to the World Nuclear Association. Kazakhstan, formerly part of the Soviet Union and a close ally of Russia, dominates the space and is responsible for the mining of 45% of all uranium.
Uranium is likely to become increasingly important, as nuclear power does not produce carbon emissions, the chief cause of global warming. And although it’s not a significant producer of uranium, a recent report from Columbia University on reducing Russia’s involvement in the West’s nuclear power supply chain indicates Russia dominates other countries when it comes to the provision of infrastructure and technology to convert uranium into nuclear power, with market shares of 40% or higher in those areas.
With Russia and Kazakhstan being dominant players in the space, there could be some difficulties with availability, considering the invasion in Ukraine has closed much of the world to trade with Russia.
The two largest ETFs focused on nuclear energy are the $1.4 billion Global X Uranium ETF (URA) and the $806.9 million Sprott Uranium Miners ETF (URNM). The former has been around since late 2010, while the latter rolled out in December 2019, though it was recently acquired by Sprott. During the first six months of the year, the funds pulled in $556.7 million and $280.7 million, respectively.
Both ETFs are index-linked, with URA charging 0.69% versus URNM’s 0.85%. URA trades $51.8 million in average daily dollar volume, while URNM trades $29.51 million.
In addition to being cheaper and more liquid, URA also has significantly lower spreads than URNM.
URA has the most holdings, with 49 securities, while URNM has 37. The two funds have an overlap of 32 holdings in common. Among the top 10 holdings alone, the funds have nine in common.
They essentially have the same top three holdings. Cameco is the largest holding in URA, with a weighting of almost 23%, while it’s the second-largest holding in URNM, with a weighting of 16.5%. National Atomic Company Kazatomprom is the largest holding in URNM, at 17.61% of the fund—it’s the third largest holding in URA. The Sprott Physical Uranium Trust, a Canadian product, actually holds uranium; it’s the third largest holding in URNM, at 11.42%, and the second largest holding in URA, at almost 7%. That means both funds have significant exposure to the price of uranium.
The big question mark around URA is the fact that it has a nearly 23% exposure to Cameco, while all other holdings individually represent less than 7% of the portfolio. That’s a lot of influence from one company and could make some investors uneasy. That said, URA’s top 10 holdings represent about 60% of the total fund, while URNM’s top 10 represent more than 75% of its total weighting.
Ultimately, there’s a lot of overlap between these two ETFs.
Not surprisingly, given the significant overlap in holdings, the two funds have very similar factor exposures, though URNM’s seem to be a bit more extreme—likely because of its more concentrated portfolio. While URA has an exposure to low size of 1.29, URNM’s exposure is 1.65. URA’s exposure to low volatility is -0.84, while URNM’s is -1.32.
URNM has exposures of -1.22 to quality and yield, while URA’s exposure to those same factors are -0.73 and -0.77, respectively.
URNM’s performance has been significantly stronger than URA’s over the one-month and 12-month periods. For the one-month period ended June 28, 2022, URNM returned -11.69% versus URA’s -12.12%. For the 12-month period, URNM returned 1.9% while URA fell almost 5%. Over the three-month period, URNM fell behind, with a decline of -25.73, versus a decline of 23.59% for URA.
However, data isn’t available over a longer time period for URNM, so the comparison stops there.
All of that said, the case for uranium in general seems pretty strong given it doesn’t produce carbon emissions, and global warming is a top-of-mind issue for many. Moreover, with Russia and its close ally Kazakhstan being dominant players in the space, there could be some difficulties with availability, allowing investors to potentially benefit from scarcity issues.
Picking the best ETF is a bit uncertain though. Although URNM has outperformed somewhat since its inception, URA continues to have better trading stats, and its broader portfolio means it captures more of the ecosystem around nuclear power.
Contact Heather Bell at [email protected]