3 Reasons for a Rebound in Nuclear Energy ETFs

On Friday, 5/23/08, something happened in China. It wasn't another earthquake, though there have been reports of aftershocks. Nor was it another passing of the Olympic torch for the 2008 Beijing Olympics.

China signed a pact with Russia for $1billion to build out a nuclear power plant facility. China has been actively seeking to expand its use of nuclear power because, at the present time, nuclear energy only accounts for 2% of the country's total energy production.

The $1 billion price tag may seem small. After all, France's nuclear superstar Areva sealed a $12.6 billion dollar with China last year.

Yet if China is committed to a long-term nuclear energy policy, investors should take notice. And they can do more than take notice by investing in the Market Vectors Global Nuclear Energy ETF (NLR).

The Market Vectors Global Nuclear Energy ETF is actually down a few percentage points from its $36 closing price on its first day of trading in 2007 (8/15). And it has traded all over the map ever since... as high as $45 and as low as $28.25.

Nevertheless, a significant rebound has been in the works. And the reasons are threefold:

1. Both suppliers and consumers are going nuclear. China wants it. Moreover, it's clear that Western and Eastern suppliers wish to profit from the trend.
2. There's "momentous" momentum. Consider that last week witnessed the worst beating for stock assets in 3 months. Yet the Market Vectors Global Nuclear Energy ETF rose 6.1%. In addition, NLR is roughly even on a year that the S&P 500 is down more than 6.3%.
3. There's another "Rule of 72." The "Rule of 72" works for back-of-the-napkin retirement planning goals. This rule, however, refers to the 72 plans for new plants in Russia, China, India and Japan. In other words, regardless of the U.S. government's reservations about nuclear energy, the demand is not going away. (Even the Nuclear Regulatory Commission in the U.S. is looking at more than 30 reactor-construction applications.)

There is an alternative to Market Vectors Global Nuclear Energy ETF. One can invest in the Powershares Global Nuclear Energy Fund (PKN).

However, PKN has been out less than 4 weeks, the volume of trading activity is low, and there's a far greater allocation to U.S. nuclear companies. PKN has nearly a 40% weighting in U.S. companies, whereas there's only a 20% weighting in NLR.

(If you are intrigued by alternative energy, you might want to review my ETF feature, "Leaner, Greener and Meaner.")

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

Comments

[Seaferer20]

I too think that making a modest play on nuclear energy at this time may very well pay big rewards downstream. Nuclear energy appears to be a better play than lots of the more infantile alternative energy start-ups. IMHO this is a long-term play; don't expect to see your bucks erupt overnight!

[John Egan]

You want to look at the holdings in each ETF before purchase...Just to make sure that you are buying what you think you are... Can't remember the details, but you might end up with a basket of equities that for the most part are not really nuclear... Perhaps you'd be better off buying equities directly... Just a thought... Thx jegan