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Dion's Weekly ETF Blog Wrap

Time for Uranium?

Published 5/24/2011 1:01 p.m. EDT

The Global X Uranium ETF (URA) is on the comeback trail today, as investors finally begin to believe China's lust for energy is beginning to eclipse the Japanese nuclear disaster. After taking a huge hit in the wake of recent natural disasters abroad, the global uranium firms that back URA have helped the ETF to gain nearly 2% today.

Several media pieces, including an article on yesterday, have made the argument that rock-bottom uranium trading has actually fueled China's desire to keep expanding the use of nuclear energy. According to the article, "The biggest drop in prices of uranium in two years may be ending as China and India plan atomic power developments that will more than double global production..."

Obviously, it's not just uranium prices that took a hit. Year to date, URA and the Market Vectors Uranium and Nuclear Energy ETF (NLR) have dropped 37% and 13.5%, respectively. URA's massive tumble can be attributed, in part, to the fund's top-heavy structure. Investors are hardly eliminating security-specific risk when they bank on a fund in which the top two components -- Cameco (CCJ) and Uranium One -- make up 20% and 15% of the underlying portfolio, respectively.

NLR, a nuclear-themed fund with a better-balanced portfolio is probably the better bet if you want to get bullish on nuclear. Launched more than three years before URA, NLR is the "original" nuclear industry ETF, and its portfolio construction is better suited for longer-term investment.

At the time of publication, Dion Money Management held no positions in any securities mentioned.

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