ETFs Gone Nuclear

With energy resources under the gun, investors may want to go nuclear with Market Vectors Nuclear Energy ETF(NLR). This fund covers the nuclear sector soup to nuts and, as the carbon-cap bill looms on the horizon, this industry may get a lift. Year-to-date, NLR has already risen nearly 20%, showcasing top components like Constellation Energy Group(CEG) and Exelon(EXC).

NLR is a reasonably sized global fund, so progress abroad will benefit shareholders at home. China, also a leader in the energy revolution with wind, currently has 11 nuclear reactors with 24 additional sites under construction. France is home to 58.

Nuclear reactors are large and expensive to build, so the planned projects overseas could help to give this fund long-term potential. "Given this fund's global exposure, we believe that it is poised to capitalize on the industry's secular growth for at least the next decade," noted Morningstar(MORN) analyst Paul Justice late last year.

More recently, Jim Rogers, chairman, president, and chief executive officer of Duke Energy(DUK), noted that "the U.S. remains a leader in researching and developing nuclear technologies. Our national labs and private sector know-how provide the resources and the scientific foundation for the U.S. to compete as a global leader in commercial nuclear power." With top country allocations like Canada, the U.S., Japan and France, NLR should be well positioned globally for years to come.

PowerShares Global Nuclear Energy(PKN) and iShares S&P Global Nuclear Energy Index(NUCL) also offer investors an opportunity to gain exposure to the sector.

PKN is more expensive than NLR and has thus far failed to attract much investor interest. NUCL, offered by ETF giant iShares, has less than half the trading volume of PKN and less than 5% of the trading volume of NLR.

NLR has a 0.61% expense ratio, which is reasonable for a specialized fund of this kind. The fund is heavy on utilities, so investors should double-check their existing utilities exposure before unwittingly doubling down. Since NLR is such a specialized fund, it will be more prone to volatility than a broad index and should be used sparingly as a portfolio enhancement.

>To order reprints of this article, click here: Reprints