New York-based Global X has launched the first ETF in Europe providing exposure to companies involved in the uranium industry.

Uranium prices have soared amid the ongoing war in Ukraine.

The Global X Uranium UCITS ETF has been listed on London Stock Exchange in US dollars (URNU LN) and pound sterling (URNG LN) as well as on Deutsche Börse Xetra in euros (URNU GY).

Uranium is the fuel most widely used by nuclear power plants as it has the unique feature of being able to self-sustain nuclear fission – the only known material to do so.

Although uranium is a relatively abundant metal, nuclear power plants typically require a certain quality of uranium, referred to as U-235, which is far more scarce.

Uranium does not trade on an open market like other commodities. Rather, buyers and sellers negotiate contracts privately, and prices are published by independent market consultants.

Uranium prices struggled for much of the last decade after nosediving following the Fukushima disaster in March 2011 which drastically shifted global sentiment away from nuclear power. Contracts settled directly before the disaster priced uranium at around $75/lb; in the subsequent years, prices barely moved above $25/lb and even reached as low as $18/lb.

Uranium’s fortunes began to change in March 2020, however, driven by government pledges worldwide to reduce greenhouse gas emissions and limit climate change. Nuclear power, which emits zero direct emissions during operations, has been touted as a powerful bridging fuel while more renewable capacity is being built.

By the end of 2021, uranium prices had reached $37/lb, while Russia’s invasion of Ukraine this year has further stoked the rally, pushing prices up to $50/lb, as of 31 March 2022.

The ongoing war has created two major tailwinds for uranium. Firstly, Europe’s desire to reduce its dependence on Russian natural gas is expected to accelerate the continent’s transition towards renewable energy. Secondly, the global supply of uranium may also come under strain if Western sanctions are extended to Russia’s uranium industry – although Russia only mines about 5% of the world’s uranium ore, the country accounts for more than 40% of global uranium enrichment, the process that turns mined or secondary uranium into nuclear fuel.

Companies operating in the uranium industry have also naturally benefitted from an uplift in uranium prices. Global X’s US-listed uranium ETF – the Global X Uranium ETF (URA US) – has returned 117.3% over the past three years, as of 22 April 2022. Since the war in Ukraine began on 24 February, the fund is up 17.5%.

The ETF has also attracted a surge of interest from investors, growing from a $240 million fund at the start of 2021 to more than $2 billion in assets today. Over the past year, it has pulled in nearly $1.3bn net inflows including a bumper month of $425m in March 2022 alone.

Methodology

The Global X Uranium UCITS ETF is linked to the Solactive Global Uranium & Nuclear Components v2 Index which selects its constituents from a universe of developed and emerging market stocks with market capitalizations above $50 million and average daily trading volumes greater than $500,000.

Based on data from the “Uranium Suppliers Annual” provided by Ux Consulting, the methodology screens for companies engaged in uranium mining, exploration for uranium, and the provision of technologies related to the uranium industry.

The index includes all ‘pure-play’ companies that generate more than 50% of their revenue from the above activities as well as a maximum of 15 ‘non-pure-play’ firms (producers of nuclear components and companies deriving significant but less than 50% of their revenue from uranium activities).

Constituents are weighted by the lesser of their float-adjusted market capitalization and average daily trading volume while capping any single pure-play company at 15% and any non-pure-play firm at 2%.

The index is rebalanced on a quarterly basis.

As of 22 April, nearly half (44.9%) of the index weight was allocated to Canadian stocks with the next-largest country exposures being Australia (16.6%), South Korea (9.0%), and Kazakhstan (7.7%).

Cameco, the world’s largest uranium producer at 18% of global production, accounted for the largest index weight at 17.5%. Other notable positions included Nexgen Energy (7.6%), NAC Kazatomprom (7.5%), Paladin Energy (5.4%), and Uranium Energy (5.3%).

The ETF comes with an expense ratio of 0.65%.