The jump in the uranium price last year has prompted some miners to move to reopen mothballed mines.Shamil Zhumatov/Reuters
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The launch of the first two European-listed uranium exchange-traded funds (ETFs), coming hot on the heels of a US$1-billion U.S. uranium ETF acquisition, are the latest indicators of what has been a flurry of fund activity in nuclear fuel investment.
But despite the huge speculative interest, especially from investors in an investment trust that’s less than a year old, industry observers warn there are no guarantees that last year’s strong performance will be repeated – even with a looming European energy crisis sparked by the Ukraine war.
The speculative activity has been led by Sprott Asset Management LP, which gained notoriety last year after its Sprott Physical Uranium Trust, which launched in July, began stockpiling so much uranium that there were fears it could corner the market and choke off supplies to power stations.
“In every commodity market you have end users and you have speculators,” says Sprott AM chief executive officer John Ciampaglia, adding that Sprott Physical Uranium Trust’s assets under management (AUM) were US$600-million when it launched and are now around US$3-billion. “We don’t sell any of it. It is a stockpiling fund.”
Sprott AM expanded its reach last week when it announced the completion of its acquisition of the US$1-billion U.S.-listed North Shore Global Uranium Mining ETF, now renamed Sprott Uranium Miners ETF URNM-A.
Sprott AM is also the latest to come to market in Europe with the launch on Thursday, via white-label ETF provider HANetf Ltd., of a UCITS version of the fund bearing the same ticker on the London Stock Exchange (LSE).
“It struck us that having a companion fund invested in the equity of the uranium sector made sense,” says Mr. Ciampaglia. Both the U.S. and UCITS versions of Sprott Uranium Miners ETF invest largely in the equity of companies in the sector, although the third-largest security in the index is Sprott Physical Uranium Trust, accounting for 11.4 per cent of fund assets.
Sprott Uranium Miners ETF’s launch follows the debut last week of the Global X Uranium UCITS ETF, on the LSE and Deutsche Börse Xetra. While the provider’s U.S.-listed Global X Uranium ETF URA-A has an almost 7-per-cent exposure to Sprott Physical Uranium Trust, the UCITS version has no exposure to physical uranium assets at all.
The launches in Europe follow the stellar performance last year of U.S.-listed Global X Uranium ETF and Sprott Uranium Miners ETF.
Global X Uranium ETF added almost US$1-billion in AUM in 2021 and delivered returns of more than 58 per cent, according to data from Trackinsight. The ETF has already attracted US$675-million of inflows so far this year, Trackinsight data to April 22 show Sprott Uranium Miners ETF’s returns last year, when it was still owned by North Shore Indices Inc., were an even more eye-catching 79 per cent.
The question is whether investors can expect that sort of performance to continue.
“The recent geopolitical unrest in Ukraine has highlighted the undesirable dependence of many countries on Russian gas,” says Kenneth Lamont, senior fund analyst for passive strategies at Morningstar Inc.
There were “sound reasons to invest in nuclear over longer periods of time,” he says, but adds: “Much of flow into these funds is likely to be speculative and may be withdrawn if and when enthusiasm cools.”
Todd Rosenbluth, head of research at ETF Trends, also sounds a note of caution.
“Demand for uranium ETFs globally has been boosted in part by the strong performance,” he says, adding “as with any narrowly focused ETF, recent performance could be fleeting.”
For ETF investors, there appear to be several factors to consider.
Nuclear power generation may not emit greenhouse gases but it does produce highly toxic waste that requires safe disposal and can pose radiation risks. Radiation leaks such as from Chernobyl in the 1980s and Fukushima in 2011 can rapidly cool enthusiasm for nuclear energy.
“This isn’t the first time around for uranium/nuclear-focused funds,” Mr. Lamont says. “Ten of the 13 funds with a uranium/nuclear focus globally launched between 2006 and 2012 had closed by the end of 2014.”
Nonetheless, as Mr. Lamont notes, nuclear has been accepted by many as a necessary element of the global decarbonization process and an important part of the global energy mix for the foreseeable future, as seen by its addition to the European Union’s Green Taxonomy.
And then there’s also the possibility of profiting from the short-term speculative interest.
Mr. Ciampaglia argues that the approximately 440 nuclear power stations globally use about 180-million pounds of uranium a year. However, there is a production deficit due to a fall in price a few years ago, which means that only about 130-million pounds is being mined annually. The jump in the uranium price last year has prompted some miners to move to reopen mothballed mines.
“I would argue that what the trust is doing is helping the spot market become much more liquid and helping with price discovery,” he says.
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