The nuclear industry fell on hard times and piled up heavy losses following the Fukushima disaster in March 2011, which resulted in the near-collapse of the uranium sector. In fact, the price of uranium plummeted 51% since the meltdown (read: Worst Performing Equity ETFs of 2013).
With the ongoing nuclear developments globally, the sector seems back on track. A major development is underway in Japan which is looking to restart its 50 shuttered nuclear power plants later this year. China is also seeking to expand its nuclear power capacity to 40 million kilowatts by 2015 and 58 million by 2017 from 12.54 million kilowatts at the end of 2011.
Further, other nations like India, France, Romania, South Korea, Bangladesh, Turkey and the UAE are also focusing on the development of the industry. Beyond these expansions, the need for new energy sources to avoid the negative effects of using coal and to reduce greenhouse gases has resulted in growing demand for uranium, driving the nuclear power sector (read: Will the Clean Energy ETF Surge Continue in 2014?).
On the supply side, most of the top uranium producers have been suffering from a series of operating problems that led to mine closures in Australia, Namibia and the Republic of Niger. This has reduced the global supply by about 15%. In addition, a deal between the U.S. and Russia wherein the latter recycles uranium from Soviet-era nuclear weapons for the former has expired, curtailing the supply of uranium.
In fact, the uranium market will likely see a supply deficit in the coming years as more power plants – as much as 33% – are expected to come online by 2030, as per the World Nuclear Association.
Rising demand coupled with falling supply would result in higher uranium prices as we move ahead in the year. Investors seeking to ride out this trend could find either of the following two ETFs an intriguing choice (see: all the Material ETFs here).
Global X Uranium ETF (URA)
This fund offers a pure play in uranium with more of a focus on uranium producers and less on nuclear energy producers. This is done by tracking the Solactive Global Uranium Index. The fund manages an asset base of $155.9 million, which is invested in a basket of 23 securities, while charges 69 bps in annual fees. Volume is moderate as it exchanges less than a million shares a day.
The product is highly concentrated on the top firm – Cameco Corp. (CCJ) – at 23.38% of assets, suggesting heavy concentration. From a country look, American securities make up just 11% of the total assets, leaving the bulk to Canada (59%) and Australia (22%). The ETF added over 8% in the year-to-date time frame.
Market Vectors Uranium + Nuclear Energy ETF (NLR)
This ETF provides broad exposure to the nuclear energy industry rather than a concentrated bet on uranium producers like URA. The fund currently tracks the DAXglobal Nuclear Energy Index but will shift to the Market Vectors Global Uranium and Nuclear Energy Index effective March 21 (read: Are Nuclear Power ETFs Back on Track?).
Holding a small basket of 18 stocks, the top two firms – Edf Sa and Exelon Corp – dominate the fund’s return with double-digit exposure. In terms of country profile, Japan takes the top spot with 24.4% share, closely followed by France (21.7%) and the U.S. (20.5%). The product has amassed $75.7 million in its asset base while it trades in light volume and the expense ratio hits 0.60%. The ETF has added 2.8% so far this year.
Over the past two months, uranium has bounced back from its low and has shown a strong run up in its prices and this trend will likely continue in the coming months. This is especially true given the start-up of idle and new reactors, a supply crunch, and rising nuclear power demand, suggesting either of the aforementioned ETFs could be an interesting play for 2014.
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