Nuclear power revival! Uranium ETF outperforms the S&P 500 by far, with uranium spot prices outperforming gold.

The latest research report from Jeremie Peloso's analyst team at Central Asia Bank points out that with the continuous revival of the nuclear energy industry, physical uranium will bring new investment opportunities.

The report emphasizes that considering the current supply gap and increasing demand, physical uranium is the easiest investment target. Among investments related to nuclear fuel cycles, only uranium mines offer actual investment opportunities, while uranium conversion, enrichment, and fuel manufacturing have very limited investment choices.

Central Asia Bank has compiled nuclear-themed and uranium mining stock portfolios based on the most common components of nuclear-related ETFs. Both portfolios have outperformed their benchmarks and the S&P 500 index since 2016. Central Asia Bank expects this trend to continue in the future.

Specifically, over the past year, the Sprott Uranium Miners ETF (URNM) in major global uranium ETFs has risen by 49%, far exceeding the S&P 500 index's nearly 27% increase during the same period. The Sprott Junior Uranium Miners ETF (URNJ) and Global X Uranium ETF (URA) have also significantly outperformed the S&P 500 index.

Furthermore, since the beginning of 2023, the spot price of uranium has surged by 110%, becoming the best-performing commodity, far ahead of gold. The performance of uranium mining company stocks last year also surpassed the industry and the market.

In addition, investment opportunities outside the nuclear fuel cycle are very limited. However, Central Asia Bank predicts that in the coming years, more companies dedicated to the design of next-generation nuclear power plants or supporting the nuclear supply chain will go public.

Amid the revival of the nuclear industry, uranium mining sees demand prosperity, with spot prices soaring by 110%

Central Asia Bank points out that there are positive developments in the nuclear energy sector every week, from new nuclear reactor projects and extending the lifespan of old reactors to taxonomic technology.

An example of this is the "Nuclear Triple Declaration" signed at COP28 in Dubai last December. At the summit, major countries such as the United States, France, Japan, Canada, and the United Kingdom pledged to double global nuclear capacity by 2050, far exceeding the International Energy Agency's (IEA) net-zero scenario.

Progress in taxonomy also indicates that due to the significant role of nuclear energy in decarbonization and clear and transparent disclosure and corporate governance in the nuclear industry, nuclear energy investments can thrive in the background of ESG. If ESG increasingly focuses on these aspects, nuclear energy may even become the ultimate ESG investment target. Central Asia Bank stated that the nuclear industry is once again becoming a growth sector, with all its momentum continuously driving the benefits of uranium and the nuclear fuel cycle-related enterprises.

When people are digging for gold, you should be selling shovels.

The reason why physical uranium is considered the easiest investment target is that it is well known that the development of the nuclear industry will require a large amount of uranium ore. The imbalance between supply and demand will intensify in the future.

The World Nuclear Association predicts that as governments around the world increase nuclear power capacity to achieve zero-carbon goals, by 2030, the demand for uranium in nuclear reactors will increase by 30%, and by 2040, it will more than double.

Unlike other commodities, uranium is not traded on the open market, and investors can only invest through futures, ETFs, or stocks of related listed companies.

It is worth noting that in the past year, the Sprott Uranium Miners ETF (URNM) in major uranium ETFs globally has accumulated a 49% increase, far exceeding the nearly 27% increase in the S&P 500 index during the same period. The Sprott Junior Uranium Miners ETF (URNJ) and the Global X Uranium ETF (URA) also significantly outperformed the S&P 500 index.

Since the beginning of 2023, the spot price of uranium has surged by 110%, making it the best-performing commodity, far ahead of gold. However, the price of physical uranium has not yet returned to its historical peak levels before the financial crisis.

Uranium mining company stocks also performed well in 2023, outperforming the industry and the market.

Central Asia Bank believes that in the nuclear sector, physical uranium offers the best risk-adjusted return, partly because the likelihood of a significant drop in uranium prices is low, but the upside potential is very high. The current supply shortage and growing demand provide a solid foundation for uranium prices, making it a stable choice.

Importantly, Central Asia Bank believes that uranium is an excellent hedge against economic recession and energy inflation - both attributes will be very attractive in 2024.

However, it is worth noting that the price of uranium is currently quite sensitive to two factors: geopolitical risks related to uranium supply chain countries and the tail risks brought by the Fukushima Daiichi nuclear power plant in 2011.

Are there any other opportunities beyond the nuclear fuel cycle?

Central Asia Bank believes there are not many options available.

In terms of nuclear island and reactor construction, there are hardly any investment choices in the public market.

For example, listed companies like General Electric, which have been involved in nuclear reactor construction for decades, are unlikely to be significantly affected due to the complexity and size of their business.

The good news is that General Electric plans to spin off its energy-focused GE Vernova in April. This company provides nuclear reactors and services, as well as natural gas, hydroelectric, and steam power technologies, along with its leading onshore and offshore wind energy business.