Why we've added uranium exposure to the Resource transformation theme

At a glance:

• Alternative energy sources are experiencing a revival of interest and investment given carbon-free energy targets.
• Over the coming decades, demand for alternative energy is expected to continue growing, making it an exciting opportunity for long-term investors with a higher appetite for risk.
• We added uranium exposure to the Resource transformation theme in March – uranium is a heavy metal used in nuclear reactions.
• Greater market investment in uranium exchange traded funds (ETF) meant they grew sufficiently to meet our ETF selection criteria.

Nutmeg has recently added uranium exposure to our Resource transformation theme. Here we explain why we think it may make for a good long-term investment for higher-risk clients, held as an ETF held within our Thematic investing portfolios.

Why invest in uranium?

Global power consumption is expected to triple by 2050 as electrification and living standards grow. Alongside this, governments across the world are facing pressure to meet decarbonisation targets. Demand for alternative energy sources, including nuclear energy, is therefore growing, making it an attractive prospect for long-term investors.

How is Nutmeg invested in uranium? 

The Resource transformation portfolio, which is available for investors with a risk level of 5 and above, now invests in uranium via a new exchange traded fund we have added to the portfolio.

We added Global X Uranium Ucits ETF (URNG) to these portfolios in March. This fund invests in a basket of companies involved in mining uranium and producing nuclear components. It was chosen because of its limited overlap with current holding VanEck Global Mining. The two funds share around 6% exposure to the same stocks.

The suitability of particular ETFs for our customers' portfolios can change over time, and past performance is not a reliable indicator of future performance. Nutmeg always monitors the ETFs we include in portfolios, and if we consider that a particular ETF is no longer suitable for our customers, we will remove it from our list of available ETFs.

Uranium is a heavy metal which is used in nuclear reactions. As demand for nuclear power grows, so does the demand for uranium.

Why has Nutmeg chosen to invest in uranium now?

There are two factors at play here: the market environment and our fund selection process.

• The market environment

Given higher demand for carbon-free energy sources, and a greater need for energy security following Russia’s invasion of Ukraine, nuclear energy is having a renaissance of interest and investment.

Several governments around the world are investing in nuclear power once again, including countries in Europe, the US, and notably China, which is aiming to produce 400 gigawatts of production by 2060 – more than the current global output.

• Our fund selection process

Our Resource transformation theme was designed to include exposure to nuclear energy as an alternative power source.

When we launched the theme last year, there wasn’t an ETF that our analysis determined had sufficient size and liquidity dynamics (how the fund's underlying assets are bought and sold) and the uranium exposure we desired.

Through 2023, thanks to inflows of investor capital and the resulting performance of uranium ore and the wider nuclear sector, ETFs became available that fit our requirements. 

There is additional diversification of the theme with the inclusion of the uranium fund, which also provides exposure to a new area. 

Are there any downsides to uranium for investors?

Nuclear energy isn’t classified as a renewable energy source like solar, wind, and hydroelectric due to the use of uranium ore, which itself is finite. There is also the risk of pollution from radioactive nuclear waste and consequences of any rare, but possible power station malfunctions.

However, nuclear energy produces fewer greenhouse emissions than carbon-based fuels. It comes in at around the same amount of carbon dioxide-equivalent emissions per unit of electricity as wind, and one-third of the emissions per unit of electricity when compared with some types of solar. 

Is Thematic investing suitable for you? 

Thematic investing is a long-term strategy that invests in the growing trends shaping our future, such as artificial intelligence adoption, energy generation, and the ageing population. The Nutmeg investment team invests a portion of the portfolio in companies that are likely to benefit from the development of these trends. 

Thematic investing may be suitable for you if you are a medium-to-higher-risk investor with a long time horizon. To find out more, click here.

Risk warning

This blog should not be construed as financial advice. If you have any questions you should seek financial advice.

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can do down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance. 

Thematic investing carries specific risks and is not for everyone. There is no guarantee that development of the trend will contribute to positive investment outcome. All Nutmeg themes, including Resource transformation, should not be considered as incorporating ESG considerations. The Resource transformation theme will likely have exposure to a variety of renewable and non-renewable materials and energy sources.