Chuck Jaffe: One fund on point for today, the expert to talk about it. Welcome to the ETF of the week. Yes, it’s the ETF of the week, where we examine trending, new and newsworthy, unique, and intriguing exchange traded funds with Tom Lydon, Vice Chairman at VettaFi. The vettafi.com site has a suite of tools and research that will help make you a savvier, smarter, and better investor in ETFs. Tom Lydon, it is great to chat with you again.
Tom Lydon: Great to be back. Thanks, Chuck.
Chuck Jaffe: Your ETF of the week is…
Tom Lydon: The Sprott Uranium Miners ETF, ticker symbol URNM.
Chuck Jaffe: URNM, the Sprott Uranium Miners ETF. Why uranium now, Tom? I mean, what’s the play here?
Talking up URNM
Tom Lydon: Well, a couple of things, Chuck. When nobody was looking with the whole clean energy boom, we are upping our game in nuclear energy. What’s the food for nuclear energy? Obviously, uranium. A couple of things. If you happen to look at this ETF, as I know you’re already doing it, Chuck, it’s above its 200-day average. It’s had a nice little bounce off the bottom. There are a couple of other things that may affect the price of Uranium Miners.
First and foremost, we used to get a lot of uranium from Russia. You can imagine that deal’s done right now. We have to look to other places. Surprisingly around the Grand Canyon in Arizona, there was a lot of uranium mining. But with the recent news, and the fact that Biden declared almost a million acres around that area as national protected land, we’re not going to be doing mining there either.
Tom Lydon: If we have less uranium coming from Russia, less mining opportunity in the US, naturally what might happen to the price of uranium, it may go up. Those Miners that are in that space already may be able to command better pricing and better profitability. That’s a simple aspect of this. We’ve got confirmation in the fact that Uranium Miners have actually improved pricing recently. They’re not a ton of them. When you go and you look at this ETF, there are a handful that… almost 10 that command the lion’s share of the capitalization within this ETF. But this is one of those thematic opportunities that when you look at it, it may be advantageous not only in the next 12 months, but maybe in the next five years, as we continue with this clean energy boom.
Chuck Jaffe: Tom, you answered my question there before I got a chance to ask it, which is when you’re looking at an industry fund, you want a full-blown industry, and to be fully diversified, a mutual fund’s going to need to have about 20 holdings. This is not a well diversified industry. That being the case, does that change how much of it you’re willing to let your portfolio be? Does it make the fund more volatile?
Chuck Jaffe: Then secondarily, this is of course a fund that everybody would’ve thought would’ve done great in light of Russia attacking Ukraine, because what we’re going to see with energy and nuclear power and all the rest, and it hasn’t been a gangbuster since the Russian invasion. Is that story just never going to play out?
Tom Lydon: Well, you bring up a couple of good points. First of all, in this very thinly sliced space, there are a handful of players. But not hugely different than the S&P 500 when there are 10 players in the S&P 500 that are accountable for two-thirds of the performance so far this year. It is what it is. However, when you look at the individual companies, they’re well-run companies, they’re fairly sizable companies, and that’s something to consider.
Tom Lydon: Then the other thing is, Chuck, the demand for uranium isn’t going away anytime soon. That’s really, really important as well. There are other areas around the world that have uranium mines. You’re going to look in emerging market countries. Now opportunities to spread mining overseas will be very, very important too. I think the key and important thing is, it’s not just one company, you’ve got a handful of companies. Yes, market capitalization on some of these are in the double digits, which normally might be concerning, but the thing is you don’t have that many other options that have greater market cap.
Tom Lydon: The biggest thing going forward though is we’re going to have to spend a lot of time and effort looking at uranium, because from a nuclear energy standpoint, that’s the gas that keeps it going, and we just don’t have any other options at this point.
Chuck Jaffe: I’ll ignore the irony of you saying that uranium is the gas that keeps it going. I will just point out somebody would maybe like that word play. In the case of this, you noted it is above its 200-day moving average, but this is a fund that has been above and below a couple of times this year. Is this a pure 200-day moving average play, ride it when it’s given you the gas, as it were, or is this make an allocation to it and stick with it, because it’s uranium, it’s unlike anything else you’ve got in your portfolio?
Tom Lydon: Right. I think long-term it’s going to do well, but look, this is very thematic. You point out it can be volatile. Use a 200-day average. There are a lot of people that have a lot of money that’s on the sidelines right now. You’re looking for areas to put it back to work. There are trends in place, and this is one of the trends that are available. This is a great ETF, and there are only a few ETFs that are specialized specifically in Uranium Miners. I’d also say Sprott has a Junior Uranium Miner, ETF, as well. For those with a little bit more cast iron in their stomach, you may want to look at that as well.
Chuck Jaffe: How much of a portfolio are you willing to make this be, and where does that money come from? It’s not exactly like you can say, “Oh, this is the ordinary commodity play.”
Tom Lydon: Right. Well, normally I would say you’d have to find something to sell, but Chuck, you and I know we’ve been talking about this. The amount of money in money market funds today, a lot of money is on the sidelines. A lot of people are keeping their powder dry for opportunities like this. 3%, 5% of your portfolio, but watch it really closely, and if it goes below the 200-day average, makes sense to pull the rip cord.
Chuck Jaffe: It’s the Sprott Uranium Miners ETF, ticker symbol URNM, the ETF of the week, from Tom Lydon at VettiFi. Tom, great stuff as always. See you again next week.
Tom Lydon: Thanks, Chuck.
Chuck Jaffe: The ETF of the week is a joint production of VettiFi and Money Life with Chuck Jaffe. Yeah, that’s me, and you can learn all about my hour long weekday podcast by going to moneylifeshow.com, or searching wherever you find the good podcasts. But if you want great information on investing in exchange traded funds, make sure you check out vettifi.com. No better place to get you all the tools you need to be a better, savvier investor, in ETFs. They’re on Twitter @vetta_fi, and Tom Lydon, their Vice Chairman and my guest, well, he is on Twitter too. He is @Tomlydon. The ETF of the week is here for you every Thursday, and be sure you don’t miss a thing by following along on your favorite podcast app. If you like us, leave a comment. They really do help.
Chuck Jaffe: We’ll be back next Thursday, and we look forward to chatting with you again. Until then, happy investing everybody.
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