Nuclear power, despite all odds, has emerged as an important piece of the energy pie and is one of the most popular forms of alternative energy in the world. The fuel source now accounts for around 15% of global power generation, making it a very important part of the global energy mix.
At present there are 437 operational nuclear power plants in 30 countries, while 68 are under construction in 15 countries. In fact, a report from the International Atomic Energy Agency (:IAEA) estimates that by 2050, nuclear generation capacity will produce 1,000 billion watts and remove 1.8 billion tons of carbon emissions from the atmosphere.
Though nuclear power reactors are expensive to build, they are relatively inexpensive to run over the long haul and thus a good fit for those willing to put up big capital outlays. Given this, nuclear plants are in demand for growing economies where power requirements are high, and sufficient funding is available from the government, since the return on investment is delivered consequently over the years.
Not All Good News
After the March 2011 Fukushima Daiichi nuclear accident, the growth of the nuclear sector slowed down. However, this has not affected the requirement of nuclear energy as the growth prospects look promising (read Uranium ETF Meltdown: Can Nuclear Power Bounce Back?).
In China, 29 standalone power reactors are under construction now, besides 15 build offs in Eastern Europe, 10 build offs in South Asia and the Middle East, 2 in Western Europe, 2 in Latin America and 1 in North America.
Furthermore, many countries are on the verge of introducing nuclear power in their energy mix and many with existing nuclear plants are planning expansion, which creates a positive outlook for nuclear energy in the alternative energy sector. The IAEA projects a 23% increase in nuclear power capacity in the next 20 years suggesting plenty of reasons to be bullish about the space in the long term (read Time to Return to Uranium ETFs?).
For investors seeking to make a play on this interesting space, there are a number of options available. In terms of basket plays, there are currently two ETFs – NUCL and NLR – in the segment, which we have highlighted in greater detail below:
iShares S&P Global Nuclear Energy Index Fund (NUCL)
Launched in June 2008, NUCL tracks the S&P Global Nuclear Energy Index comprising 24 large traded companies in business related to energy. The product charges 48 bps in fees a year.
The fund has an asset base of $10.3 million and trades in an average daily volume of 600 shares. The major industry in the index is Electric Utilities at 46.77% of the total. The top 3 holdings of the funds are Mitsubishi Electric Corp (9.10%), Mitsubishi Heavy Industries (7.65%), and Nextra Energy Inc. (7.18%).
Country-wise, holdings for the U.S. and Japan are at 37.50% and 28.30%, respectively. The ETF has a low tracking error rate of 0.02% with the index and the year-to-date return stands at +11.12% indicating positive returns for investors over the long run (see Clean Energy ETFs: The Real Bull Market?).
Market Vectors Uranium and Nuclear Energy ETF (NLR)
Launched in August 2007, NLR tracks the DAXglobal Nuclear Energy Index. The ETF comprises of 20 stock holdings mainly comprising large and mid cap stocks in the energy sector. The ETF charges 60 bps in fees for a year. The fund has an AUM of $77.5 million with an average daily traded volume of 34777 shares.
NLR has big holdings in the U.S. (17.3%), Canada (26.5%) and Japan (24%) and the sector comprises major holdings in Industrials (37.61%), Basic Materials (35.76%) and Utilities (22.15%).The top 3 holdings of the fund are Exelon Corp (7.97%), Electricité de France S.A. (7.95%) and Alpha Minerals Inc (6.84%)
The nuclear industry has a bright outlook and decent growth prospects. Recent news, however, has distracted investors from these positives, allowing the space to underperform (see Go Green with These 3 Clean Energy ETFs).
However, with the nuclear deals with China, Russia and other countries, and with nations planning existing expansion of nuclear plants, the overall outlook looks promising. It is believed if safety issues are closely monitored, the sector will attract more investors and reap higher sustainable returns, suggesting that either NLR or NUCL could make for an interesting choice for those in it for the long haul.
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