Though the broad energy sector has been hit badly in recent months, uranium has shown a nice comeback following the meltdown from the Fukushima disaster in March 2011. In fact, it strongly bounced off as much as 57% from its nine-year low hit in May turning out to be the best performing energy commodity this year (read: 3 Energy ETFs Sliding to 52-Week Lows).
The atomic fuel is indeed heading towards its first annual gain since 2010, returning 18% in the year-to-date time frame.
Behind the Surge in Uranium
The upside was mainly driven by ongoing nuclear developments across the globe, Russian sanctions, and a series of operating glitches at some of the mines. A major expansion is underway in Japan – Asia's largest uranium user. The country is looking to restart its first nuclear power facility early next year as Kyushu Electric Power Co. received local approval for two reactors at its Sendai power station to resume operations.
Meanwhile, China, the world’s largest energy consumer, is seeking to expand its nuclear power capacity threefold by 2020 and is expected to build the maximum number of reactors globally over the next three years.
Apart from Japan and China, other nations like Russia, India, Brazil, England, Romania, South Korea, Saudi Arabia and the UAE are also focusing on the deployment of a large number of nuclear reactors. Further, the need for new energy sources to avoid the negative effects of using coal and reduce dependence on greenhouse gases has resulted in a growing demand for uranium, driving the nuclear power sector.
Anything to Worry About?
Investors are concerned about the sustainable price increase of uranium amid the energy market rout and uranium surplus. This is because the uranium supply glut is expected to enter into the sixth year even after production disruptions from Australia to Africa as well as the strike at Cameco (NYSE:CCJ) McArthur River operation in Canada.
Though the recent Western sanctions against Russia over its conflict in Ukraine had raised speculations of curtailing global supplies, it proved to be short-lived. Notably, Russia is a leading provider of enriched uranium services to many Western utility companies.
However, the deployment of a large number of reactors globally would reverse the supply glut in the long term, resulting in higher uranium prices. Investors could definitely take advantage of this upcoming surge by focusing on the only pure play - Global X Uranium ETF (URA) – which tracks the Solactive Global Uranium Index.
The fund manages an asset base of $235 million while it charges 69 bps in annual fees. Volume is good as it exchanges about 258,000 shares a day. In terms of performance, the fund is down about 17% in the year-to-date time frame and is underperforming the broad market fund and many other products in the materials space by wide margins.
However, URA surged 11% in the past month and is expected to climb in the coming months, based on both technical and fundamental factors described below:
Although the fund hasn’t broken out of its near-term range, its short-term moving average has managed to stay above mid-term levels. The 9-Day EMA is now comfortably above the mid-term 50-Day EMA and is rapidly approaching the 200-Day EMA, suggesting bullishness for this ETF (see: all the Material ETFs here).
This is further confirmed by an upswing in Parabolic SAR, although this figure should definitely be monitored closely. Further, the Relative Strength Index [RSI] is around 45, indicating an uptrend in the fund’s price.
Fundamentals The fund provides exposure to a small basket of 24 stocks and is highly concentrated in the top firm – Cameco Corp. – at 24.3% of assets, suggesting heavy concentration. The next two firms –-Uranium Participation (OTCPK:URPTF) and Denison Mines Corp (NYSEMKT:DNN) – also have double-digit allocation while the other firms hold less than 6% of assets. The product primarily focuses on small caps as it accounts for three-fourths of the portfolio while large caps take the rest. In terms of country exposure, American securities make up just 11% of the total assets, leaving the bulk (71%) to Canada (read: 3 Outperforming Small Cap ETFs in a ChoppyMarket). To sum up, the uranium ETF could be a good choice for investors given improving fundamentals including the start-up of idle and new reactors, and rising nuclear power demand. The fund also looks strong from a technical and fundamental perspective. GLBL-X URANIUM (NYSEARCA:URA): ETF Research Reports (email registration required)