ETFs to play the resurgent nuclear, uranium theme

Oct 18th, 2011 | By | Category: Commodities

Nuclear, uranium sector ETFs look attractive – despite Fukushima tragedy
Despite the recent incident at the Tepco nuclear plant in Fukushima, Japan, economic powerhouses like China and India are relying more and more on nuclear energy.

ETFs to play the resurgent nuclear, uranium theme

Despite Fukushima, fast-growing powerhouses like China and India are relying more and more on nuclear.

Dr Kate Marvel, an energy expert at Stanford University, anticipates that countries that use nuclear power will implement reactor safety reviews and step up the debate on how to best deal with spent fuel, but says that there is no foreseeable end to nuclear power as “too many countries depend too heavily on it.”

Although the nuclear industry has suffered setbacks on implementation of some projects as a result of events in Japan, the movement as a whole is alive and poised for growth in many areas, according to Daniel Magnarelli, manager of Construction & Commissioning at French nuclear giant Areva. “Nuclear is a global industry and there is a revival underway,” he says.

While the UK, Russia, Sweden, Poland and Spain are holding firm – looking at lessons learned from the Japanese crisis while trying not to surf the wave of emotion – in other parts of Europe, there has been more of a knee-jerk reaction. For example, Italy has completely suspended new build ambitions, and Germany and Switzerland have announced plans to phase-out nuclear power generation.


ETFX WNA Global Nuclear Energy ETF (NUKE)

– Diversified exposure to 65 global companies
engaged in the nuclear energy industry

– Physical replication

– UCITS compliant, LSE-listed, UK Reporting
Status, eligible for ISAs and SIPPs

– TER of 0.85%, reasonable for such a highly
targeted specialist fund

Still, in Asia, plans are moving full steam ahead. That part of the world is factoring in lessons learned from the crisis, but has not seen a slowdown in construction or development. Governments in both India and China have confirmed their willingness to continue with nuclear new-builds.

Taiwan and Korea are also conducting safety reviews, but they too have not shown any signs of reducing commitment to nuclear power. Meanwhile, Canada has said it does not want a slowdown in nuclear, and in the US, the president has reaffirmed his cautious support for the industry.

Indeed, many experts are sceptical that Germany will follow through with its plans to close its entire nuclear industry once the public realise the effect it will have on their energy bills. Either way, if Germany does bin its nuclear programme, it will have to import more of its energy requirement, which will probably come from France which generates most of its energy through nuclear facilities. In a sense, therefore, Germany will effectively shift some of its nuclear production over the border.

But even in the event that Germany’s plan is implemented in full, the loss represents only a fraction of global nuclear capacity. China’s plans to quadruple its capacity over the next decade or so will replace this loss many times over.

It seems, therefore, that what has happened as a result of Fukushima is that the timeline of new nuclear development has extended a little, but that the overall international appetite for nuclear energy remains largely undiminished.

According to the World Nuclear Association, there are 432 operating reactors around the world, 63 currently under construction, 154 formally planned, and another 341 proposals seeking construction approval.  The IAEA recently predicted that at least 73 gigawatts of net new nuclear capacity will be added worldwide by 2020, and that capacity will more than double by 2030.

With this renewed surge in nuclear power on the horizon, which will undoubtedly benefit companies of all types involved in the nuclear industry, focus has been put on the main fuel source behind nuclear power: uranium. Despite the already-large demand for uranium, the mining industry lacks adequate capacity to meet future demand. Both the mining and purchasing communities agree that the price of uranium is heading upwards.

Remember, there are 432 reactors operational worldwide and a further 558 planned, proposed or in construction. The fact is that global nuclear capacity is going to be significantly larger in the years ahead. Supply of uranium simply isn’t going to expand anywhere near the pace of demand, with the end result being upwards pressure on uranium prices.

For investors looking to gain exposure to the nuclear industry, there are a number of ETPs to choose from:

ETFX WNA Global Nuclear Energy ETF
The WNA Nuclear Energy ETF is designed to track the performance of approximately 65 companies engaged in the nuclear energy industry with representation across reactors, utilities, construction, technology, equipment, service providers and fuels. (LON: NUKE, TER: 0.65%)

db Uranium ETC
The db Uranium ETC tracks the Uranium Index (TradeTech U3O8 Weekly Spot Price Indicator) and offers the most direct exposure to the underlying uranium price. The index is determined by TradeTech, based on their judgement of the price at which spot and near-term transactions for significant quantities of natural uranium concentrates can be concluded as of the end of each Friday. Unlike other commodity indices in the market, the Uranium Index is not calculated with reference to a specific calculation methodology. The level of the Uranium Index is based on data from recently completed transactions, data from pending transactions, firm bids to buy or borrow, firm offers to sell or lend and other factors. (LON: XURA, TER: 3.60%)

Global X Uranium ETF
The Global X Uranium ETF is designed to reflect the performance of the uranium mining industry. It is comprised of selected companies globally that are primarily engaged in some aspect of the uranium mining industry, such as mining, refining, exploration, and manufacturing of equipment for the uranium industry. (NYSE: URA, TER: 0.69%)

Market Vectors Uranium+Nuclear Energy ETF
The Market Vectors Uranium+Nuclear Energy ETF seeks to track the movements of securities of companies engaged in the nuclear energy industry that are traded on leading global exchanges. (NYSE: NLR, TER: 0.57%)

iShares S&P Global Nuclear Energy Index ETF
The iShares S&P Global Nuclear Energy Index ETF seeks to track approximately 24 of the largest publicly-traded companies in the global nuclear energy business from developed or emerging markets. The constituents are equally distributed between the nuclear materials, equipment and services and nuclear energy generation industries and the Fund is concentrated in those industries. (NASDAQ: NUCL, TER: 0.48%)

PowerShares Global Nuclear Energy ETF
The PowerShares Global Nuclear Energy ETF is designed to track the overall performance of globally traded companies which are engaged in the nuclear energy industry with representation across reactors, utilities, construction, technology, equipment, service providers and fuels. (NYSE: PKN, TER: 0.75%)

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