Indexing boutique North Shore Indices and white-label ETF provider Exchange Traded Concepts have teamed up to launch an ETF providing targeted exposure to the global uranium mining sector.
The fund will compete with other uranium mining ETFs offered by Global X and VanEck.
Listed on NYSE Arca, the North Shore Global Uranium Mining ETF (URNM US) offers a thematic play on nuclear power demand growth and uranium supply deficits.
The fund is likely to appeal to investors who anticipate a comeback in the spot price of uranium.
After experiencing a peak price of nearly $140/lb in 2007, uranium has declined by over 80% to approximately $26/lb (as of 2 December 2019) mainly due to oversupply.
Some analysts contend, however, that growing global demand for clean, emissions-free sources of alternative energy will spur demand for nuclear energy, thus lifting uranium prices.
Methodology
The ETF is linked to the North Shore Global Uranium Mining Index which selects its constituents from a universe of developed and emerging market stocks with market capitalizations greater than $25 million.
The index is divided into two buckets. The first bucket is allocated a weight of 82.5% and comprises companies that devote at least 50% of their assets to the mining, exploration, development, and production of uranium. The sector bucket, which receives a weight of 17.5%, is composed of companies that hold physical uranium, uranium royalties, or other uranium-related, non-mining assets.
Constituents within each of the two buckets are weighted by market capitalization subject to several constraints and stipulations. They include a cap and floor of 15% and 0.5%, respectively, for individual security weights; an aggregate 90% allocation to companies with market capitalizations greater than $100m; a rule that no more than five securities have weights greater than 4.7%; and a rule that the cumulative weight of all companies with weights greater than 5% is capped at 50%.
Reconstitution and rebalancing of the index occur on a quarterly basis.
The underlying index’s modified market capitalization methodology sets the North Short ETF apart from its competitors – such as the $180m Global X Uranium ETF (URA US) and $20m VanEck Vectors Uranium+Nuclear Energy ETF (NLR US) – and results in a relative tilt towards junior miners.
However, with an expense ratio of 0.85%, it is the most expensive of the three. The Global X and VanEck ETFs come with expense ratios of 0.69% and 0.60%, respectively.
Tim Rotolo, CEO & Founder of North Shore Indices, commented, “We are excited to be working with Exchange Traded Concepts on the URNM ETF. The fund represents a timely launch that will offer a broad range of investors access to a much-needed unique play on the uranium sector.
“After a multi-year bear market, we believe that the uranium sector is at an inflection point. The fundamentals of the industry have improved on the back of strong nuclear power demand growth and global supply cuts which have pushed the market into a deficit. Given the current state of uranium mining economics, a considerable price rise will be required if new mines are to be brought online to meet the future supply needs.”
Garrett Stevens, CEO of Exchange Traded Concepts, added, “We are thrilled to be working with the North Shore Indices team to bring this timely fund to market. Great colleagues and great ideas are the true drivers of ETF success. We’re very pleased to add North Shore Indices and URNM to our growing list of affiliates and innovative ETF solutions.”