URA ETF: A Reasonable Way To Expose Yourself To Uranium

Many commodities are in a bull market, and some of them are probably just getting started. I believe uranium may be one of them, because it has been out of favor so long. If a reversal of trends is occurring here for uranium, the Global X Uranium ETF (URA) appears a reasonable method of obtaining diversified exposure to this market. Of course, one must understand that any exposure to uranium, and probably also uranium equities, is a risky proposition. URA provides access to a broad range of uranium miners, as well as producers of nuclear components, such as companies involved in the extraction, refining, exploration of uranium, as well as those that manufacture equipment for the uranium and nuclear industries.

URA has a fee of 0.69%, which is high for a core index fund, but not for a smaller tactical position. Moreover, URA provides domestic investors with access to uranium producers that are not on the domestic markets, which is a great many of them. Kazakhstan is the largest annual producer, with Canada and Australia behind it.

While URA does offer exposure to Kazakhstan, nearly half the fund’s assets are in Canadian companies. The exposure to Australian assets appears roughly in line with its production. There are also many South Korean and Japanese companies within the ETF, and many of the international entities do not trade on the domestic markets.

The largest holding within URA is Cameco (CCJ), a Canadian producer that does trade in the United States of America. Cameco is run out of Saskatoon, Saskatchewan, but it also produces within Kazakhstan, Australia, and the United States of America. Therefore, that Canadian company is really warping the country breakdown, and actual exposure to these other nations is slightly higher.

Uranium prices may have bottomed. It appears that uranium hit a bottom a few years ago and languished there since then. It has been moving up on a slow trajectory over the last several years and may have just spiked out of that bottom.

If this trend continues, uranium prices could have a long way to go. Uranium last peaked in the low $70s in 2011, and got to $136 back in 2007. While it is not certain that prices are going back to those levels, it is possible that uranium is moving into a new price range for this decade that will be generally higher.

That tiny blip up on the uranium chart has some incredible leverage to URA. If we look at URA over the last few years, we see its sensitivity to the price of uranium. Moreover, the URA chart shows that the asset class really was left for dead back before the pandemic, and even through much of 2020.

Some of the recent strength in uranium is due to the general price strength of all energy commodities. More expensive petroleum makes for more expensive uranium. Also, both benefit from broader forces that might benefit hard assets here.

Nuclear power is a complicated issue these days, but it has the strong potential to be picked up as a proper alternative. Nuclear power could be adopted as a measure to reduce European dependence upon Russian oil and gas, as well as oil and gas from all sources. Current geopolitical concerns could potentially initiate and restart prior plans that had included nuclear power.

Germany actually phased out nuclear power over the past decade. After Japan’s Fukushima nuclear disaster in 2011, Germany announced the intention to phase out nuclear power. It also shut down several of its working nuclear power plants, with the current plan being to shut down the remainder of this year.

Germany’s plan may get slowed down, or even turned around. Such actions may even be proposed as a threat in negotiating with Russia, and even that notion could cause a spike to uranium. While these possibilities are far from certain, the notion that Germany could at least slow down its withdrawal from nuclear power is reasonable at this time.

If oil and gas costs to appreciate, and geopolitical tensions continue to rise, or even remain at present levels, it is likely that nuclear power will eventually catch a serious bid. This may be the case for a great many commodities, and especially energy-related commodities.

Uranium is the most volatile and most left for the dead of the energy commodities, so it has the potential to spike in the near term upon continued increases to oil and gas. Similarly, continued inflation is likely to support hard assets, and uranium has a notoriously slow rate of decay. For these reasons, I believe uranium has reasonable risk/reward characteristics here, and that URA is a reasonable method of allocating into it.