Expect prices to climb as global supply and demand equalize, says portfolio manager
Advisors who want to give their clients exposure to future energy commodities should look to uranium, Nick Piquard, a portfolio manager and Vice President at Horizons ETFs told Wealth Professional.
“If you’re going to allocate money to the energy sector, it makes sense to put some uranium in that,” he said. “I think oil prices will probably stay reasonably high because we still need fossil fuels in the short-term. But, 10, 20 years down the road, the plan is to move away from fossil fuels. So, if you want to have an energy allocation in your portfolio and want to have some exposure to what energy is going to look like in the future, that’s going to be battery metals, solar and wind, and uranium. They’re going to power the future.”
Horizons ETFs launched its Horizons Global Uranium Index ETF in May 2019. It’s still the country’s only uranium ETF. Launched at $10 a unit, it's price has now reached $24.16. The fund has $54 million in assets and is invested in 10 companies, including some in Canada and Kazakhstan, the world’s largest uranium producer, which produces 40% of the world’s low-cost uranium. Its civil unrest, and proximity to Russia and China, have caused countries to examine their supply options.
“The fund’s grown steadily,” said Piquard, “but I think there’s still a lot of potential upside. We haven’t seen the production of uranium grow in the past few years, so there’s still a lot of potential.”
Horizons’ fund was one of the top-performing ETFs in 2021. Piquard said, “last year was an exceptional year where people kind of woke up to the sector. Investors rediscovered the potential for uranium.
“I think 2022 is going to have a lot of new signposts of what’s happening to the supply and demand equation and nuclear utilities. They signed long-term – 10-year - contracts for uranium and a lot of the contracts that were signed are going to be due for renewal over the next few years. The nuclear utilities want to sign new contracts to supply more uranium, so that will be, I think, the next catalyst.”
Piquard said many companies don’t produce enough uranium to fulfill their contracts, so are buying it, and that could be the next driver for higher prices.
Horizons Global Uranium Index ETF has a mix of large cap producers in Canada (Cameco Corp.) and Kazakhstan (NAC Kazatomprom), mid companies, such as Denison Mines Corp. and Nextgen Energy Ltd., and Yellow Cake PLC. Its U.S.-based Energy Fuels Inc. has projects in Canada, Australia, and Africa, so Piquard said the mix “give you a nice global exposure”.
He noted that there’s been an imbalance of supply and demand for awhile. In 2018, an excess uranium supply was depressing prices. The world’s largest uranium mine shut down because of poor demand since the Fukushima, Japan nuclear disaster in 2011. Supply was reduced just as China regained interest and demand began to pick, so China, India, and Russia had the only growth until last year.
Now, the U.S. is extending its nuclear plant capacity and, given climate change, the European Union has also just declared nuclear power a “green energy”, but it will take awhile for any new capital-intensive new plants to come online. Germany, meanwhile, is closing all of its nuclear plants, while the United Kingdom and France have growth plans. Piquard said there may be interest in small modular nuclear units to supplement wind and solar power. Uranium, meanwhile, dropped to $20 per pound, now is $40, and needs about $60 per pound to break-even, so Piquard said future prices could climb.
“As advisors in Canada, we seem to think we should be focused on Alberta oil and gas for our energy exposure,” said Piquard. “This is a way to look at a global commodity and a global ETF, which has exposure to different sectors of energy and is likely the future of energy. So, I think it’s a good thing for advisors to look at, especially since Canada is actually a dominant player in this space.”
