Much of the space is also dominated by utilities, which come with their own risks. These include high debt levels, regulatory uncertainty, weather and climate exposure, long project timelines and limited pricing power.
If I were to invest in energy transition themes, I would focus less on the end providers and more on the inputs that make the system work. Much attention has been paid to electrification metals such as lithium and copper.
However, my preference is uranium. Regardless of personal views on nuclear energy, nuclear energy remains one of the most energy dense, reliable and low carbon sources of base load electricity. It works independently of the weather, has a predictable output and plays an increasingly important role in energy security discussions.
Getting known as a Canadian is easy. Cameco (TSX: CCO), the largest publicly traded uranium miner in the world, has long been a blue chip on the TSX.
Yet one company does not represent an entire theme. If you want broader exposure to uranium, there are two ways to approach this, and one exchange-traded fund (ETF) that combines the two.
Two ways to invest in uranium
The first is owning spot uranium exposure. Spot exposure tracks the current uranium price rather than futures-based prices. Unlike gold or silver, you cannot buy and store uranium yourself. Handling Yellowcake is illegal for individuals and requires specialized permits, secure facilities and strict supervision by regulators. It is also unaffordable.
To address this, some asset managers have launched closed-end trusts that purchase and store physical uranium on behalf of investors. You purchase shares of the trust, which gives you partial ownership of the uranium you hold in custody. The advantage is that these vehicles tend to closely track uranium spot prices. The disadvantage is that uranium itself does not generate any cash flow. Returns are entirely determined by supply, demand and speculation.
The second approach is to invest in uranium miners. These companies explore, mine, process and sell uranium. Mining activity is geographically concentrated. Canada and Australia are among the top jurisdictions that are politically stable and accessible to Western investors. Other major producers operate in emerging markets such as Kazakhstan, which may be more difficult for individual investors to access.
Some investors prefer mining companies because they provide operating leverage on uranium prices. If spot prices rise, revenues can rise faster than costs, expanding margins. In strong cycles this can also lead to multiple expansion. In some cases, miners can pay modest dividends, although income is not the main attraction.
My favorite uranium ETF
As a Canadian investor, I like the Global X Uranium Index ETF (TSX: HURA). This ETF tracks a global uranium pure-play index from Solactive and combines both approaches discussed above.
The index allows up to 25% of the portfolio to be allocated to investments that provide direct exposure to uranium spot prices. That exposure currently comes through a closed-end uranium trust managed by Sprott. Currently, that allocation is well below the limit, namely approximately 13.4%.
The remainder of the portfolio is invested in uranium mining companies. Cameco is the largest holding company with approximately 20%. The ETF may also hold select nuclear utilities, which use uranium as a primary fissile fuel for electricity generation.
This is not a cheap ETF. The management expense ratio is 0.98%, with an additional trading expense ratio of 0.07%. Higher fees are a common disadvantage of thematic ETFs.
Because of that and the lack of diversification, HURA is not something I would consider a permanent core holding. Timing, position size and sector knowledge matter, especially in a cyclical and sentiment-driven space like uranium
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