3 ETFs For A Nuclear Power Renaissance

Includes: CCJ, DNN, NLR, NUCL, PKN, SO
by: Zacks Investment Research

After last year’s disaster at Fukushima, many forecast the death of the nuclear power industry as countries jumped out of this potent fuel for other alternatives. Some looked for fossil fuels to play a bigger role in electricity production while others predicted greater dependence on clean tech products such as wind and solar instead. While both of these types have increased somewhat in importance, nuclear power doesn’t appear to be going away anytime soon, at least in some markets.

Here in the U.S., nuclear power accounts for roughly 20% of total electricity production a figure that has roughly held steady over the past few decades. This is because there hasn’t been much in terms of new infrastructure in the nuclear space in the United States since Three Mile Island in 1979. This partial meltdown put a screeching halt to the nuclear industry as not a single new plant has gone online in the U.S. since that time. However, despite this long holdout and the tragedy at Fukushima still fresh in regulators’ minds, perceptions could be changing, albeit slowly (see Can The Uranium ETF Hold On To Recent Gains?).

In fact, the U.S. Nuclear Regulatory Commission just approved Southern Company’s (SO) plans to build reactors in the U.S. marking the first such approval in 30 years. The construction, which is expected to begin shortly, looks to add to the 104 total reactors operating in the country and could create over 1,100 megawatts when eventually completed in 2017. “It’s a big day for the industry and for the country,” Bill Johnson, chairman and chief executive officer of Raleigh, North Carolina-based Progress Energy Inc., said in an interview. “We’ve been talking about a nuclear renaissance for years now and this is the first tangible sign that we are going to proceed in a meaningful way.”

Due to this reversal, a variety of segments related to the nuclear power industry could benefit. The second biggest electricity market in the world is now open to more nuclear power again, representing a huge growth sector for the space. Not only will the move likely benefit those who do construction and engineering for nuclear operations, but it could also help utilities as well. This is because it could more easily and cheaply allow these power producers to shift into cleaner fuel sources, potentially giving these firms the ability to easily add capacity while limiting their exposure to dirtier fuels like coal in the process. Should the U.S. focus in more on limiting these emissions, this could turn out to help out those who have moved to nuclear power instead, suggesting that many sides of this issue could surge as a result (read Top Three High Yield Global Sector ETFs).

Yet, while the nuclear industry certainly cheered the news, there were some reasons to give pause to buying up the sector. After all, while the vote was 4-1 in favor of approval, the lone dissenter was the NRC chairman while others in the government expressed concern over more nuclear power on American shores after Fukushima. “I cannot support these licenses as if Fukushima never happened,” said Chairman Gregory Jaczko in Rockville, Maryland immediately following the vote.

Possibly thanks to this potential issue and fears over more regulation in the future, shares of SO didn’t exactly surge on the release of this news, although the approval is a landmark event for the industry nonetheless. The approval could mark a return to nuclear power construction in the U.S. and greatly expand the prospects of many infrastructure and utility firms in the field who have been looking to expand in the space. An investment in a particular firm is certainly a way to play the sector, but some investors may be better off taking a closer look at the ETF world instead (read Three Tech ETFs Outperforming XLK).

These funds could benefit if there is a broad return to prominence for the industry and if fortunes rise across the board for the sector. Thanks to this, the reliance on any one company is likely to be mitigated, making an ETF play a lower overall risk play on the still uncertain sector going forward. With this in mind, we have highlighted three ETFs below that could offer excellent proxies for those looking to make a play on a nuclear power renaissance via ETFs:

iShares Global Nuclear Energy Fund (NASDAQ:NUCL)

This ETF tracks the S&P Global Nuclear Energy Index a diversified benchmark that consists of firms that are engaged in some aspect of the nuclear energy industry. The product holds 25 securities in total while charging 48 basis points a year in fees for its services. Currently, American and Japanese securities make up the bulk of the fund, combining to take 50% of the assets, although a slew of developed Western nations take up the rest of the top seven. In terms of sectors, electric utilities (44.5%) take the top spot, while three other segments make up at least 10% of total assets. Beyond this, top individual holdings include AMEC, Mitsubishi Heavy Industries, and JGC Corp, all of which have more than 8% of total assets (read Five ETFs to Buy in 2012).

Market Vectors Uranium + Nuclear Energy (NYSEARCA:NLR)

This product takes a different approach, following firms that either operate or build nuclear plants or those that mine for the raw material. Despite this broader focus, the fund still holds less than 25 securities, charging investors 57 basis points a year in fees. American firms are about one-third of the total exposure although Japanese (21.3%) and Canadian (20.6%) firms have strong showings as well. For individual firms, EDF Sa, takes the top spot but it is closely trailed by Mitsubishi Heavy Industries, utility giant Exelon (EXC), and uranium miner Cameco (CCJ). The product is tilted towards large caps, but small caps do occupy roughly 36% of assets, suggesting a nice mix of market cap levels (read Time To Consider The Small Cap Oil ETF).

PowerShares Global Nuclear Energy Portfolio (NYSEARCA:PKN)

This ETF looks to have a broad focus across the industry, representing firms that are engaged in any of the following segments; reactors, utilities, construction, technology, equipment, services, or fuels. This ETF holds far more than its counterparts with 63 firms in total, although fees are higher at 75 basis points a year. The product is titled more towards American firms (41.5%) than most, although Japanese securities still make up about 21.8% of total assets as well. In terms of individual holdings, Areva takes the top spot while Toshiba, Cameco and Denison Mines (DNN) round out the four biggest holdings of PKN. Clearly, this fund has more of a focus on tech and industrials than some of the others in the space, a factor that investors should consider before making a decision for exposure.

Disclosure: Author is long EXC.