Bruno del Ama: Smart Money Flocking to Uranium
Source: Brian Sylvester of
The Energy Report
Gold has dominated a lot of headlines lately, so when Bruno
del Ama of Global X Funds launched an exchange traded fund (
) focusing on the precious metal and another on uranium, he was
confident about which one would set off at a sprint. Yet
surprisingly, sales of the Global X Uranium ETF have reached $65
million since its launch on Nov. 4, making it one of the most
successful ETFs this year. In this exclusive interview with The
Energy Report, Bruno discusses why the smart money is chasing
The Energy Report:
Bruno, you recently launched a number of ETFs focusing on gold,
lithium and uranium. There are some others in the works, too. Do
you view the ETF market as being underserved?
Bruno del Ama:
I think the ETF market is underserved in some ways and saturated in
some other ways. It's an interesting dynamic. In certain areas of
the market, there may be five, six or seven ETFs that are very
similar, tracking the same segment of the market and very highly
correlated with each other. We view these market segments as
saturated. However, other areas are not very well served,
particularly when it comes to some commodity markets or
equity-related commodities; for example, the gold, lithium, uranium
and copper markets. More focused offerings for these markets allow
sophisticated investors to go a little further than just a
diversified commodity investment and really get deep down into the
areas in the commodities markets where they see the most
What do you see as being the main attraction of ETFs compared to
similar investment vehicles?
There are a number of advantages compared to traditional mutual
funds. Typically, the expense ratios tend to be lower. ETFs also
offer more targeted investments that are not usually available with
traditional mutual funds.
But perhaps the most important advantage is a tax advantage. Due
to how new shares are issued and redeemed for ETFs versus
traditional mutual funds, investors who are trading in and out of
the fund have no consequence on the long-term investors. One of the
problems with mutual funds is that as investors trade in and out of
the fund, they are creating a tax consequence as the fund buys and
sells shares to meet that liquidity. ETFs are a more tax-efficient
Another important feature is that investors have complete
transparency about the investments. On our website,
Global X Funds
, investors can monitor all of the holdings in our portfolio on a
daily basis-exactly how many shares and the dollar amount. That's
something people value, particularly looking back at some of the
issues that have occurred in the past three years with the lack of
liquidity and transparency with some financial products.
The other problem with other products, such as exchange traded
notes (ETNs), is credit risk. In a fully invested equity ETF, such
as all Global X Funds ETFs, all of the assets are segregated and
owned by the investors. Therefore, there is no credit risk to a
Is that what appeals to institutional investors about your
These characteristics are what make ETFs appealing versus other
types of investments. The value of the Global X Funds, in
particular, is that they provide access to areas of the world that
we believe will perform well over the long term. We define that by
looking at what the markets will look like 25 years from now and
offering access to areas of the world that really aren't offered or
covered by anybody else in a nice cost-effective package.
One example of that is the
Global X Uranium ETF (
. We received calls from the Schedule I banks in Canada: Royal Bank
of Canada (RBC), Toronto-Dominion, Bank of Montreal (BMO).
Basically, they all said the ETF was the talk of the town.
Because the ETF is the first of its kind?
Exactly. There's no uranium ETF or uranium-focused fund dedicated
to the main uranium companies anywhere. This is indeed the first of
Do you have an extensive research team behind you to identify those
trends and opportunities in such places, those not necessarily
apparent to others?
We do have a development team that focuses on identifying the
themes we find interesting. We see significant opportunities in
global commodities, cleantech and emerging markets where we expect
substantial growth. We want to find the best opportunities that
aren't really offered by any other exchange traded fund out
We partner with the best index companies to cover those
particular markets; for example, we just filed for a TSX Venture
ETF that will cover the most liquid companies of the Venture
exchange in Canada. We will be licensing that index from Standard
& Poor's and leveraging its research team to provide access to
that particular market.
Your firm recently launched both uranium and gold ETFs. Much to
your surprise, sales of the uranium ETF are outpacing those of the
Yes. We brought two products to market over two days. The
Global X Gold Explorers ETF (
focuses on gold exploration companies, which is a particular
segment of the gold mining life cycle. It's a very early stage and
high-risk segment with potentially high rewards. We also launched
the Global X Uranium ETF that tracks the performance of uranium
mining companies globally. We think these two trends will do very
well over time.
Based on the incredible interest in gold today, we did expect
that the Gold Explorers ETF was going to generate more interest
from investors. They've both been a huge success thus far with
investors, but the success of the uranium fund has been incredible.
In just a matter of days, we attracted $65 million in assets. It is
one of the most successful launches of any ETF this year. We were
surprised because we expected both products to be successful, but
we didn't expect the uranium product to be as successful as
quickly-or that it would be more successful than the gold
What is the net asset value of the uranium fund?
The initial NAV on November 4th was listed at about $15. As of
yesterday, the NAV for the uranium fund was $17.73.
One of the reasons the fund is doing so well is due to the somewhat
remarkable rebound in the price of uranium oxide. Adam Schatzker,
an analyst with RBC Capital Markets in Toronto, said, "It appears
that the character of the spot market has changed markedly over the
past few months from one that was heavily oversupplied with weak
demand to one that is in high demand with very little supply." Do
you agree with that?
That is the case. Yes.
What do you believe is responsible for that turnaround?
The long-term supply and demand dynamics were already in play to
provide an adjustment in price. It was just a matter of time as to
when that adjustment in price was going to take place. From the
supply side, there hadn't been much investment in uranium mines for
years. The supply has been fixed for a while, and it takes some
time to bring new production in line as prices start to adjust.
With regards to demand, there are a lot of investments in new
nuclear reactors, which are the biggest users of uranium. And some
uranium supply was provided by the decommissioning of nuclear
warheads, but that is coming to an end.
In light of these trends, the prices had to adjust. There was a
trigger, however, that caused the adjustment in such a short
timeframe. As the Global X Uranium ETF went to market, China
Guangdong Nuclear Power Corporation entered into a 10-year
agreement to buy uranium at a price that was well above the spot
price at the time of the announcement. That really woke everybody
up. China has shown its hand and indicated that if other buyers
want to secure uranium supplies over the long term, it's not going
to cost what the price was in the spot market at that time.
Are you concerned about volatility in the market given the rapid
rise in the uranium oxide price?
Sometimes these commodity markets are sleepy for a long time and
there's not a lot of volatility on the price of the commodity
itself. Supply and demand dynamics are very long-term dynamics.
Those take a long time to build up, and that's been going on for a
while. The deal I described above with China was the trigger that
woke up the market and made it obvious that uranium was
We are seeing a significant amount of volatility right now as
the market is trying to realize exactly where the clearing price of
uranium should be. The value of uranium miners is also experiencing
volatility as analysts and investors reassess the value of these
companies. These companies produce uranium at flat rates but can
now sell uranium at a higher price, resulting in higher margins and
valuations. In a way uranium miners provide a leveraged play with
regards to the underlying price of uranium. Periods of dislocation
like this occur when investors have the opportunity to generate
outside returns before the market settles down into a price and the
valuation of the equities become more established.
Roughly 20% of your uranium ETF is in
Cameco Corp. (NYSE:CCJ; TSX:CCO)
. With that much of a weighting toward Cameco, why should investors
choose your ETF over direct investment in such a company?
Cameco is a big holding of the fund because it represents a
significant share of global uranium production. That still leaves
80% of the fund invested in 22 other global uranium miners. A lot
of these companies are listed in Canada but also in other markets
globally, such as Australia or the UK. Investing directly in Cameco
is potentially a better proposition if an investor believes the
company is potentially undervalued relative to the entire uranium
market. But if an investor wants to have diversification across the
uranium market, Cameco is not the best way to invest. They get
better exposure by having the whole uranium-producing market, and
the ETF is a better mechanism to achieve that.
BHP Billiton Ltd. (NYSE:BHP; OTCPK:BHPLF)
made a takeover offer for fertilizer maker
PotashCorp (NYSE:POT; TSX:POT)
. The offer hit some roadblocks and BHP ultimately withdrew it.
Could you see a similar bid come in with a company like Cameco?
Potentially. When there is significant dislocation in a market that
has attractive supply and demand dynamics, insiders that have a
good sense of where the market is going have an opportunity to
purchase companies at potentially attractive valuations. These
conditions in the potash market are also present in the uranium
market, and we think mergers and acquisitions (M&A) activity is
possible as companies try to take advantage of these trends, secure
additional supply or build a larger market share. Any acquisition
of a uranium mining company would likely increase valuations for
the sector as a whole, which would bode well for the prices of
these companies and the returns of the uranium ETF.
Tell us about some of the fund's other holdings.
Other companies include, for example,
Uranium Energy Corp (NYSE.A:UEC)
Ur-Energy Inc. (NYSE:URG; TSX:URE)
Mega Uranium Ltd. (
, which is a Canadian company with uranium resources in Australia
and uranium exploration projects in Australia, Canada and Cameroon.
Uranium Energy Corp is interesting because it has recently
commenced uranium production using in-situ recovery (ISR) methods
in South Texas. This marks the first revitalization of uranium
mining in the U.S. in more than five years. Although the U.S. has
very significant uranium resources in the ground, it currently
imports the overwhelming majority of its uranium for fueling its
nuclear power plants.
Uranerz Energy Corporation (TSX:URZ;
has applied for licenses for in-situ recovery of uranium in
Wyoming, where the U.S. has the largest known uranium resource
base, and plans to begin production by 2012. It also has long-term
contracts to sell the uranium to the top U.S. nuclear generators,
one of which is the third largest in the world,
Exelon Corporation (
Why are you holding those particular companies?
This ETF, as with most ETFs, is a passive one. We track an index
maintained by a third party, Structured Solutions, which is an
index company that has particular expertise with commodities and
resources. The ETF is comprised of the largest and most liquid
uranium mining companies, wherever they may be in the world, so
long as they generate most of their revenues and resources from
Do you think you will have some competition in the future?
Clearly, this is an area where there's significant interest. It's
entirely possible that someone else wants to participate in the
Any parting thoughts on the uranium market and the ETF
A lot of smart money is going into the uranium market right now.
There seems to be a bit of a dislocation currently-perhaps an
opportunity. The supply and demand dynamics are driven by nuclear
plants being built all over the world. China is making massive
investments to build 45 reactors, but there are projects across the
board in South Korea, Japan, Russia and so on. The uranium market
is getting a lot of smart-money interest.
The ETF market has some advantages. It's a targeted,
cost-efficient package for investors. The market as a whole
continues to grow rapidly. We are actually one of the
fastest-growing ETF companies in the world, having just crossed $1
billion in assets. We see a lot of opportunities to bring
interesting products to investors, such as the TSX Venture ETF I
mentioned and a number of other products we have in the works.
Ok, great. We look forward to seeing what you debut next. Thanks
for your time today, Bruno.
Bruno del Ama is the cofounder and CEO of New York-based asset
manager Global X Funds. The company is dedicated to developing
innovative ETFs focusing on emerging markets, global commodities
and cleantech resources. Global X Funds has more than $1 billion in
assets under management, and BlackRock has ranked the company as
one of the fastest-growing ETF providers in the world year to
Prior to Global X Funds, del Ama served as head of operations in
the structured products business at Radian Asset Assurance. Before
that, he was a senior consultant at Oliver Wyman, advising leading
financial services firms in a range of strategy matters. Bruno del
Ama is a CFA charter holder and received his MBA from the Wharton
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1) Brian Sylvester of The Energy Report conducted this interview.
He personally and/or his family own shares of the following
companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors
of The Energy Report: Uranium Energy Corp., Uranerz and Mega
3) Bruno del Ama: I personally and/or my family own shares of the
following companies mentioned in this interview: As CEO of Global X
Funds, Mr. del Ama and/or Global X Management Company receives
compensation from all the Global X Funds. The Funds invest in most
of the companies mentioned in the article. I personally and/or my
family am paid by the following companies mentioned in this
interview: As CEO of Global X Funds, Mr. del Ama and/or Global X
Management Company receives compensation from all the Global X
Funds. The Funds invest in most of the companies mentioned in the
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