Uranium ETF: Maybe Not Radioactive

When the Global X Uranium ETF URA debuted nearly six years ago, it looked like good timing for the first and still only exchange traded fund dedicated to uranium equities.

The commodities boom was in full swing and investors were encouraged by strong demand fundamentals, particularly courtesy of fast-growing emerging markets such as China and India, for uranium. A few months after URA, tragedy in Fukushima, Japan struck, significantly altering the outlook for uranium and investors' view on uranium stocks.

So with URA up 2 percent year-to-date, it can be said the ETF is disappointing relative to other equity-based commodities funds. But relative to its recent history, URA acting pretty well this year. Additionally, there are believers in the long-term thesis for uranium equities. Even Japan has reactivated some nuclear power plants.

Even after all the controversy and rough annual performances, URA, which tracks the Solactive Global Uranium Total Return Index, is home to $120.3 million in assets under management. Data suggest nuclear power demand is set to grow, perhaps providing a catalyst for URA along the way.

“In 2013, nuclear power contributed around 5% of the world’s total energy supply, and is a major source of energy in developed markets like Europe (26%) and the US (20%). According to analysts, nuclear power output is expected to grow faster over the next five years than over the last 20 years. This demand is largely being driven by emerging markets which have massive electricity needs, but are struggling with air pollution issues, like China and India,” according to Global X research.

As of the end of the second quarter, URA was home to 24 stocks, over two-thirds of which were Canadian companies. The U.S. was nearly 13 percent of the ETF's weight.

As is the case with many commodities and the corresponding equities, China looms large for URA and its components.

“China is not only the largest market for uranium in the world, but also it has the most ambitious plans to grow its nuclear power capacity. The country currently has 34 active reactors, with another 20 under construction, and 42 more planned. According to Beijing’s most recent five-year plan, China is seeking to build 40 new nuclear power plants by 2020, tripling its nuclear power generation,” adds Global X.

China will account for nearly two-thirds of nuclear power growth over the next 15 years with other emerging markets, such as India and Russia, also contributing to increased nuclear power use.