The U.S. nuclear renaissance has gained a USD$17.5 billion federal tailwind, but the uranium exchange-traded funds favoured by retail investors have struggled to follow.
The Department of Energy announced the loan commitment on Wednesday. Its loan commitment backs 10 new Westinghouse reactors and supports the domestic uranium supply chain. However, the Global X Uranium ETF (NYSEARCA: URA) has fallen 0.56 per cent year to date. The VanEck Uranium and Nuclear ETF (NYSEARCA: NLR) has performed worse, dropping 8.31 per cent.
That disconnect matters for investors who bought either fund expecting direct exposure to new reactor construction and uranium demand.
URA remains the largest and most liquid uranium ETF, with about USD$7.81 billion in net assets as of April 30. It charges a 0.69 per cent expense ratio and owns miners, converters and companies connected to the nuclear industry.
Meanwhile, NLR spreads its investments across uranium miners, nuclear utilities and equipment manufacturers. The fund carries a 0.52 per cent expense ratio and offers a 2.77 per cent dividend yield.
Both provide exposure to nuclear energy, but their holdings respond differently to federal spending.
The DOE program primarily benefits companies that mine, enrich and fabricate nuclear fuel or participate directly in reactor construction. Conversely, NLR carries substantial exposure to utilities whose earnings depend on electricity markets.
Constellation Energy Corp. (NASDAQ: CEG) represents NLR’s largest holding at 9.62 per cent. The nuclear power producer’s earnings track wholesale electricity prices more closely than uranium prices or reactor construction orders.
Consequently, NLR can lag when uranium and nuclear supply-chain companies rally while utility stocks remain weaker.
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Investors have continued putting money into the fund
URA sits closer to the supply-chain thesis, although its portfolio carries considerable concentration risk. Cameco Corp. (TSE: CCO) (NYSE: CCJ) accounts for 22.18 per cent of the fund.
Additionally, the remaining positions sit well below Cameco’s weighting. That structure makes URA’s performance unusually dependent on one Canadian uranium producer.
Investors have continued putting money into the fund despite its recent weakness. More than USD$850 million has flowed into URA, suggesting investors continue buying during the downturn.
However, the Sprott Uranium Miners ETF (NYSEARCA: URNM) offers a more direct connection to uranium production and fuel demand.
The fund holds 82.37 per cent of its portfolio in uranium and related equities. It also holds 17.63 per cent through the Sprott Physical Uranium Trust, providing direct exposure to uranium itself.
That physical holding creates an important difference between URNM and its larger competitors.
As utilities and government-backed programs contract for uranium, changing uranium prices can feed directly into the trust’s net asset value. Investors therefore do not need to wait for higher uranium prices to appear in a mining company’s quarterly results.
Additionally, URNM has outperformed its two rivals over the past year. The fund gained 15.5 per cent, compared with 12.84 per cent for URA and 0.25 per cent for NLR.
URNM has also returned 113.07 per cent over five years. However, that stronger exposure to uranium comes with greater volatility and similar concentration concerns.
Cameco represents 20.69 per cent of URNM, while NexGen Energy Ltd. (TSE: NXE) (NYSE: NXE) accounts for another 12.65 per cent.
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Taxes can complicate decision to switch funds
Furthermore, URNM charges a 0.75 per cent expense ratio. That costs six basis points more than URA and 23 basis points more than NLR.
Its asset base also remains smaller at approximately USD$2.1 billion. Meanwhile, URNM has fallen 5.45 per cent year to date despite the supportive federal policy environment.
The fund’s lack of utility exposure removes some of the defensive characteristics available through NLR. Consequently, investors receive greater exposure to uranium price movements alongside potentially larger swings in portfolio value.
Taxes can also complicate any decision to switch funds.
URA has returned 167.42 per cent over five years, meaning long-term holders could face capital gains taxes after selling profitable positions. In addition, investors could instead direct new contributions toward URNM rather than immediately selling existing holdings.
Investors using tax-advantaged accounts face fewer tax complications when changing allocations.
NLR may still suit investors seeking nuclear exposure alongside utility income. URA provides broader uranium exposure, strong liquidity and substantial Cameco exposure.
However, URNM more closely tracks the mining and physical uranium segments that stand to benefit from expanding reactor and fuel demand.
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