ETF launches frantic cap fund activity in uranium sector
The launch of the first two uranium exchange-traded funds listed in Europe, hot on the heels of the acquisition of a billion-dollar U.S. uranium ETF, are the latest indicators of what has been a flurry of fund activities in nuclear fuel investment.
But despite huge speculative interest, particularly from investors in an investment trust that’s less than a year old, industry watchers warn there’s no guarantee that the strong performance of last year will repeat itself, even with a looming European energy crisis triggered by the war in Ukraine. .
The speculative activity was led by Sprott Asset Management, which gained notoriety last year after its Sprott Physical Uranium Trust (SPUT), launched in July, began stockpiling so much uranium that there were fears it could corner the market and choke off power plant supplies.
“In every commodity market you have end users and speculators,” said Sprott AM chief executive John Ciampaglia, adding that SPUT’s assets under management were $600 million when the Trust was launched and now amounted to approximately $3 billion. “We don’t sell any. It is a storage fund. »
Sprott expanded its reach last week by announcing the completion of its acquisition of the $1 billion U.S.-listed North Shore Global Uranium Mining ETF (URNM). Now renamed Sprott Uranium Miners ETF (URNM).
Sprott is also the latest to hit the market in Europe with the launch on Thursday, via white-label ETF provider HANetf, of a Ucits version of the fund bearing the same symbol on the London Stock Exchange.
“It seemed to us that having a companion fund invested in uranium sector equity made sense,” Ciampaglia said. The US and Ucits versions of URNM invest largely in stocks of companies in the sector, although the third largest stock in the index is SPUT, which accounts for 11.4% of the fund’s assets.
The launch of URNM follows last week’s launch of the Global X Uranium Ucits ETF (URNU), on the LSE and Deutsche Börse Xetra. While the provider’s US-listed Global X Uranium ETF (URA) has almost 7% exposure to the Sprott Uranium Trust, the Ucits version has no exposure to physical uranium assets.
The European launches follow last year’s strong performance from US-listed companies URA and URNM. Global X’s URA added nearly $1 billion in assets under management in 2021 and generated returns of over 58%, according to data from TrackInsight. The ETF has already attracted $675 million in inflows so far this year, according to TrackInsight data as of April 22. URNM’s returns last year, while still owned by North Shore, were an even more eye-catching 79%.
The question is whether investors can expect this type of performance to continue.
“Recent geopolitical unrest in Ukraine has highlighted many countries’ undesirable reliance on Russian gas,” said Kenneth Lamont, senior fund analyst for passive strategies at Morningstar.
There were “good reasons to invest in nuclear over longer periods”, he said, but added: “A large part of the flows into these funds are likely to be speculative and can be withdrawn if and when the enthusiasm cools”.
Todd Rosenbluth, head of research at ETF Trends, also issued a caveat. “Global demand for uranium ETFs has been driven in part by strong performance,” he said, adding “as with any narrowly focused ETF, recent performance may be fleeting.”
For ETF investors, there seem to be several factors to consider. Nuclear power generation may not emit greenhouse gases, but it produces highly toxic waste that requires safe disposal and may pose radiation hazards. Radioactive leaks such as those at Chernobyl in the 1980s and Fukushima in 2011 can quickly dampen enthusiasm for nuclear energy.
“This isn’t the first time there have been uranium/nuclear focused funds,” Lamont said. “Ten of the 13 uranium/nuclear-focused funds launched globally between 2006 and 2012 had closed by the end of 2014,” he added.
Nonetheless, as Lamont noted, nuclear has been accepted by many as a necessary part of the global decarbonization process and an important part of the global energy mix for the foreseeable future, as shown its addition to the EU green taxonomy.
And then there is also the possibility of taking advantage of short-term speculative interest.
Ciampaglia argued that the roughly 440 nuclear power plants around the world use about 180 million pounds of uranium a year. However, there is a production shortfall, due to a drop in prices a few years ago, which means that only around 130 million pounds are mined each year. Rising uranium prices last year prompted some miners to reopen mothballed mines.
“I would say what the Trust is doing is helping the spot market become a lot more liquid and helping with price discovery,” Ciampaglia said.