By request: The #Uranium ETF Flywheel Effect🎡 What it is, how it works and how U can profit/lose by it.💰↕️👨🏫 A major driver behind share price moves for U #mining #stocks is the buying & selling going on in the market by investment firms linked to the large $1B+ U sector ETF's $URA $URNM 🐋 and to a lesser extent smaller $HURA $URNJ $NLR etc.🐁 The ETF's hold baskets of stocks🧺 that expand & contract according to investor sentiment.💞 📝All of the ETF's track an Index that defines which stocks they must hold and the size of each holding (% weighting).⚖️ The Index 'constituents' and weightings are published by the Index providers on Bloomberg.📊 There are 2 basic ways that the ETF's expand & contract: 1) There's strong market demand or selling of the ETF and it's market share price is rising or falling well above or below its Net Asset Value per share on high volume.🔊 This creates a tracking error between the NAV per share & market price that must be corrected by the ETF managers.↕️🧑🔧 2) A major investing client wants to buy or redeem a very large position in the ETF in a way that does not drive the ETF's share price up or down.😌 Either of these 2 situations will trigger the 'Flywheel Effect'.🎡 Case 1 - ETF NAV expansion: Each ETF has an investment firm/broker that acts as a 'Market Maker'(MM) to help provide market liquidity and assist in correcting NAV tracking errors.🔧 If the ETF share price is soaring well above its NAV per share then the ETF managers will issue new ETF shares and instruct the MM's to buy more of the ETF holdings in the market, according to the Index weightings published on Bloomberg. In the case of Global X Uranium ETF $URA they would use the 'SOLURANT' Index. The MM's load up with the stocks held by the ETF🛒 until they have built a complete portfolio equal in size to the value of the new ETF shares being issued📁 and then deliver that folio to the ETF manager🚛 who rolls those holdings into the ETF, raising the ETF's NAV per share to correct the NAV tracking error.💲⬆️✔️ Case 2 - Major investor taking a position: Say a Goldman Sachs client wants to buy 100,000 shares of $URA directly from the ETF manager.🧑🔧 Goldman Sachs can become registered with $URA as an 'Authorized Participant'(AP) that is allowed to act just like $URA's MM.🔧 The ETF manager instructs the AP to go out and buy a complete portfolio of the ETF's stock holdings in accordance with the SOLURANT Index constituents & % weightings.📁 When the AP has built their portfolio they transfer all the holdings to the ETF Manager🚛 who then issues Goldman Sachs 100,000 new $URA shares.🧾 $URA has increased its NAV and number of issued shares & reports that on their website (usually a few days after the fact).📄 Of course, both these cases are complex given the holdings trade on exchanges all around the globe🇨🇦🇺🇸🇦🇺🇬🇧🇭🇰 on different time zones, so it can take a day or two or longer for MM's & AP's to buy up all the required stocks to build a complete portfolio.🛒📁 The MM & AP will buy the stocks needed at whatever is the Ask price, which is where the Flywheel Effect kicks into gear⚙️ especially for small cap names with low liquidity. This 'mandated buying' can really drive up the share price for small stocks held by the ETF, regardless of the company's own underlying fundamentals.💩 $GLO, for example, may be dealing with issues in Niger, but the MM's & AP's will drive up its share price regardless as they build their portfolio for $URA.💲🎡⤴️🛒 So, if you the small retail investor want to ride the 'Flywheel Effect' gravy train🚂 in a bull market📈 you build your own positions in the ETF holdings listed on their Index so that when the MM's & AP's are loading up with the stocks in your portfolio, you get a windfall rise in profits.🤑 However, when the situation is reversed↩️ and there is a market pullback leading to major downward selling pressure on the ETF🎡⤵️ the Flywheel Effect can lead to dramatic spiralling downward of share prices for the ETF's holdings as the MM's are instructed to sell the ETF's holdings into the market at whatever the Bid price might be: 'mandated selling'.⬇️ 1) When the ETF share price falls well below $URA's NAV per share, the ETF Manager will cancel a portion of $URA's outstanding shares by transferring a portfolio of the stock holdings to the MM📁🚛 directing them to sell all those stocks into the market in order to correct the NAV tracking error.📉 2) Similarly, if that Goldman Sachs client wants to redeem their 100,000 share $URA position then $URA's manager takes back the 100,000 shares🧾 and hands their AP a portfolio containing all the shares of stocks that they must then sell into the market📁🚛 to collect their profit or loss from their redemption.🪙 Note that the AP may choose to delay selling the portfolio stocks until market conditions improve in order to reduce their losses, which can create the Flywheel Echo Effect🔉 as they sell large volumes of stocks into the market several days after the redemption.⏳ Meanwhile, your smile turns to tears🎭 as the Flywheel Effect drives down the share prices of the stocks in your portfolio🎡⤵️ especially the small cap low liquidity stocks for which buyers may be hard to find in a major market pullback🏜️ no matter how fabulous U think the stock's fundamentals might be💎 it will still get treated like 💩! There are currently over $3 Billion worth of Uranium stocks held in ETF's, so when the flywheel starts spinning in either direction it can produce dramatic effects.🎭 Trading in and out on those direction changes can be worthwhile if U have all the right skills.🦸 If not, ride out the roller coaster volatility, buy on the dips, knowing that in a bull market the Flywheel Effect's overall momentum will drive your portfolio of ETF-held uranium stocks far higher over the long bull run.💰🐂 Good luck with your research and investments!☘️🌈🦄
@quakes99 I thought the flywheel effect described the effect of Sput in ETFs specifically while at premium: Flows buy ETF > % goes into Sput > Sput buys pounds > U goes up > excitement > flows buy ETF Flywheel
@EvanProkup That's another flywheel for sure in a positive feedback loop that feeds on itself. That's the SPUT Flywheel as opposed to the ETF Flywheel. Good luck with your investing!
@EvanProkup @quakes99 Yes, it's as you describe. It's a circle of demand and buying. The clue is in the word "wheel."