Global X announced on Friday the launch of its second new ETF in as many days, adding the Global X Uranium ETF (URA) to a fast-growing lineup. The new product will track the Solactive Global Uranium Index, a benchmark designed to reflect the performance of companies engaged in various parts of the uranium industry, including mining, refining, exploration, and manufacturing of equipment for the uranium industry. The index consists of about 25 securities in total, with a heavy weighting towards developed markets. In terms of individual country exposure, the new ETF will be tilted towards companies listed in Canada (50%) and Australia (31%), with the U.S. (13%) and the UK (5%) rounding out exposure (it should be noted, however, that some of the index components may engage in mining activities around the globe–not just the country where their stock is primarily listed). For individual companies, the world’s second largest miner of the element, Canadian-based Cameco Corp, takes up close to one-fifth of the fund’s total assets and is trailed by Paladin Energy (12.8%), and Uranium One (12.2%). The three combine to produce roughly 20% of the world’s uranium, and are among the largest non-diversified uranium miners in the world.
All About Uranium
Uranium–represented on the periodic table as simply “U”–is widely used in various military applications thanks to its high density. But the metallic element is also a critical component of fuel for nuclear power plants, an application that some believe could be a major piece of the global energy equation going forward. Australia holds the world’s largest uranium deposits, followed by Kazakhstan, Canada, and Russia.
Uranium could soon be under the spotlight thanks to the recent shift in the legislative landscape. Results from the mid-term elections saw a Republican takeover of the House of Representatives and similar situations in Governors’ mansions around the country. As Republicans and Democrats remain extremely polarized, the need for an expansion of the nuclear power industry may be one area of cooperation and compromise from what is expected to be a generally gridlocked Washington. Nuclear power already represents roughly one-fifth of the country’s energy output and a move to build new plants could help to drastically increase this figure and reduce dependence on foreign oil [also read ETF Ideas For Obama's Export Plan]. “When the history of nuclear power is written, Nov. 2, 2010 will be a major turning point for the industry,” said Don Gillispie, CEO of Alternate Energy Holdings, Inc.. “It will mark the beginning of a dramatic resurgence for nuclear power.”
The U.S. isn’t the only country looking to expand its nuclear power program. France and China recently formed a strategic nuclear power partnership that includes building reactors, fuel recycling, and exploiting mining reserves. “The partnership marks the coming together of French expertise in civilian nuclear power — France is overwhelmingly dependent on nuclear energy — and China’s insatiable appetite for cheap energy to fuel its economic growth,” writes Nicholas Vinocur.
Uranium Is The Key
With this possible surge in nuclear power on the horizon, a renewed focus has been put on the key fuel source behind nuclear power: uranium. The dense metal is used to create nuclear fission reactions, which heat water to produce steam. This steam helps to turn turbines that generate electricity in a variety of countries around the world. According to the World Nuclear Association, it appears as if even more countries are getting in on the act; there are currently 440 nuclear power reactors operating in 31 countries across the globe, producing roughly 15% of the world’s electricity. Moreover, roughly 60 power reactors are currently being constructed with the vast majority coming in China, South Korea, and Russia [see our ETF Country Exposure Tool].
Growing populations and ongoing urbanization in many of the world’s emerging markets will likely lead to drastic increases in demand for both uranium and electricity. The IAEA recently predicted that at least 73 gigawatts in net new nuclear capacity will be added worldwide by 2020, and that capacity will more than double by 2030. If these figures hold up, uranium demand will necessarily surge to provide all of these new plants with the raw materials they need to produce an increasingly large amount of power.
Almost all of the uranium mined is used for power generation, positioning the metal as a critical resource in the future of the clean energy industry. Currently, uranium prices remain well below their pre-crash peak of roughly $130/lb., trading around $55. But many investors expect significant price increases in coming years; RBC Capital Markets recently predicted that the price of uranium will hit $80/lb within three years. “The Uranium ETF, like the successful Lithium ETF launched last quarter, provides access to a commodity in the renewable energy space,” says Bruno del Ama, CEO of Global X Funds. “These resources are key for the future of clean technology.”
This newest fund from Global X will charge an expense ratio of 69 basis points and will mark the 16th product for the New York-based issuer. The Global X product lineup includes sector-specific and market-cap specific Brazil and China ETFs, as well as five different options grouped into the Commodity Producers ETFdb Category: the Silver Miners ETF (SIL), Lithium ETF (LIT), Copper Miners ETF (COPX), and recently-launched Gold Explorers ETF (GLDX). The company also offers funds focusing on the economies of Colombia (GXG) and the Nordic region (GXF).
Disclosure: Eric is long LIT.