Uranium Miners Dig Up Solid Returns
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Nuclear energy ETFs recently jumped back into the spotlight with impressive gains. Chuck LeBeau wrote about nuclear ETFs last month, and covered the two comprehensive funds in the sector: PowerShares Global Nuclear Energy (PKN) and iShares S&P Global Nuclear Energy Index (NUCL). In addition to these, there are two other ETF options that offer significant exposure to the nuclear energy industry.
The Market Vectors Uranium & Nuclear Energy ETF (NLR) and the Global X Uranium ETF (URA) are both strong plays. NLR gained over 30% in the past six months and URA is up over 20% since it launched in November 2010. Those returns have far surpassed the returns of PKN and NUCL -- not surprising when you consider that PKN and NUCL are dominated by low-beta utility plays. In contrast, NLR and URA focus on miners, which have benefitted greatly from the recent surge in uranium prices from the mid $40s to roughly $70 per pound.
The story of uranium's rise is simple. First and foremost, commodities have been rallying since last summer, when the Federal Reserve first suggested that another round of quantitative easing (QE) could be in the pipeline. Though many investors focused on gold and oil, uranium actually outperformed both with gains of more than 55%.Meantime, global warming issues and politics have spurred governments to invest billions of dollars into the nuclear sector to find "cleaner" energy sources. This has led to increased speculation that demand for the metal will soar in the future. According to the World Nuclear Association (WNA), more than 60 nuclear reactors are under construction in 15 different countries, with over 150 more on the way. Having launched in August 2007, NLR was the first nuclear energy ETF to hit the market. NLR tracks the DAXglobal Nuclear Energy Index and holds 24 companies that are involved in various aspects of the nuclear power industry. About 40% of NLR is weighting towards uranium miners. NLR's top holding is Canada-based Cameco (CCJ), which makes up 8% of the fund. A behemoth in the nuclear energy industry, Cameco is one of the world's largest uranium miners. NLR is very liquid and, with over $290 million in assets under management, it is the largest nuclear energy ETF in the market. That said, URA is quickly catching up.
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