Everything You Need To Know About The Uranium ETF

by on August 23, 2012

ETFs have found their way into countless portfolios as investors have embraced the transparency and cost-efficiency benefits associated with this product structure. Furthermore, these instruments have played a major role in democratizing the investment process by bringing previously difficult-to-reach corners of the market to investors’ fingertips; commodities in particular have surged in popularity among mainstream investors as ETFs have made it easy and cost-effective to tap into this previously out-of-reach asset class [see also How To Pick The Right ETF Every Time].

The exchange-traded universe is vast, however, and investors usually have multiple options for achieving their objective. For example, those looking to tap into the Alternative Energy sector may opt for broad-based ETFs targeting this corner of the market, or focus in on Nuclear Energy Equities in particular. Investors who are looking to gain more direct exposure to this segment may also consider offerings in the Commodity Producers Equities ETFdb Category as these companies usually offer leveraged exposure to spot prices for the goods they produce.

At the moment, alternative energy enthusiasts have only one option when it comes to uranium producers; the Global X Uranium ETF (URA) is currently the only tool which delivers exposure to companies who are active in the uranium mining industry [see also Energy Bull ETFdb Portfolio].

Uranium 101Photograph featuring sunflowers in front and a plant on the back. The plant has a wide smoking chimney with diameter comparable to its height.

Uranium is a metallic element that is perhaps best known for its use in nuclear energy; it is one of the densest naturally-occurring elements in the world, which gives it a unique set of physical properties that make it an important ingredient for nuclear fission, X-rays, ammunition and various other industrial uses. From a production perspective, Australia holds the world’s largest uranium deposits, followed by Kazakhstan, Canada and Russia. The investment thesis behind this commodity is fairly straightforward; uranium makes for a lucrative play as the prominence of nuclear energy continues to grow across developed and emerging markets alike.

Nuclear energy is poised to become a larger part of our global market as supply levels for fossil fuels continue to dwindle while alternative “green” technologies are still too costly to implement on a mass scale. As with any other commodity, tightening supply conditions lead to higher prices; this makes uranium a perfect candidate for those looking to favorably position themselves over the long-haul as demand is expected to outgrow the already low supply levels over the coming years [see also 25 Ways To Invest In Alternative Energy].

Under The Hood

The Global X Uranium ETF  boasts roughly $153 million in asset under management since launching in late 2010. This fund is linked to the Solactive Global Uranium Index, which tracks the price performance of publicly-traded companies that are active in some aspect of the uranium mining industry such as exploration, refining and the manufacturing of mining equipment. The underlying portfolio of 24 securities is very top-heavy seeing as the top-ten holdings alone account for over three-quarters of total assets, which increases the company-specific risk associated with this product [see also URA Fact Sheet].

From a market capitalization perspective, URA is well-rounded; large and mid-cap size mining firms receive fairly equal allocations while small and micro caps also account for a significant portion of the portfolio. In terms of geographic diversification, Canadian stocks account for roughly half of total assets followed by a major allocation to Australia [try our Free ETF Country Exposure Tool].

URA charges 0.69% in annual expense fees, which falls in the middle of the cost-spectrum for the Commodity Producers Equities ETFdb Category. However, this ETF can make for a compelling investment among some cost-concious investors as it is available commission-free to E*TRADE and Interactive Brokers account holders.

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Disclosure: No positions at time of writing.