‘It’s Electric!’ The Utility of Nuclear Power

Uranium and nuclear power are still on the menu for investors this week. Clean and green, nuclear power has come back into the global spotlight in recent months as an attractive alternative to fossil fuels and as the Russia-Ukraine conflict has prompted governments to prioritize energy security. This renewed interest in nuclear has increased demand for uranium.

In last week’s ETF Talk on Sprott Uranium Miners ETF (URNM), I mentioned that uranium is the fuel for nuclear fission, the process through which nuclear energy — mostly electricity — is produced. Nuclear is back in vogue for the first time since the 2011 Fukushima disaster that prompted a stall in new production for over a decade. While uranium is not a rare element, government investment in it has been low for years, negatively affecting the number of companies engaged in mining and exploration of the chemical element. But demand is now soaring in this niche industry and nuclear is on the rise.

The market is limited to just a few baskets of stocks from which to choose. Many have been seeing significant growth due to recent geopolitical events and a global focus on green climate policies. Uranium is vital to the green energy transition and increased demand has pushed uranium prices to their highest point since 2011. We’ve recently highlighted two funds in the uranium market, Global X Uranium ETF (URA) and Sprott Uranium Miners ETF (URNM). This week, I want to introduce another (mostly) pure-play nuclear fund.

VanEck Uranium+Nuclear Energy ETF (NYSE: NLR) is an exchange-traded fund (ETF) that targets companies across the uranium and nuclear energy industry. The portfolio focuses on companies expected to generate at least 50% of revenue or assets from mining, building and maintaining nuclear facilities, producing electricity using nuclear sources or providing services to the nuclear power industry. The fund seeks to replicate the price and yield performance of the Nuclear Energy Index, which is intended to track the overall performance of companies involved in uranium mining, the construction and maintenance of nuclear power facilities and related businesses in the production of nuclear power.

VanEck’s NLR is smaller than the other uranium ETFs and employs a different strategy. Unlike URA and URNM, NLR’s portfolio includes a hefty percentage of holdings in utilities. This makes it less of a pure-play option than the others and not quite as promising. Its growth has not matched URA and URNM, but investing so heavily in nuclear power utilities helps to stabilize the portfolio in a highly volatile market. It also provides a modest yield of 1.57%.

NLR fund has 28 positions, and its top 10 holdings account for 59.61% of assets. The fund’s sector weighting favors Energy at 47.64% and Utilities at 40.66% of the portfolio, rounded out by Industrials at 10.04% and Information Technology at 1.59%. Top holdings in the portfolio include Constellation Energy Group (NASDAQ: CEG), Public Service Enterprise Service Inc (NYSE: PEG), Pacific Gas & Electric Corp (NYSE: PCG), Cameco Corp (NYSE: CCJ) and Cez As (PSE: CEZ).

Source: StockCharts.com

The fund is down 2.81% over the past month, up 13.90% over the last three months and jumped 25.21% year to date. NLR has a net asset value of $114.46 million and a net expense ratio of 0.61%.

While the energy sector is growing and the demand for nuclear power is on the rise, be aware that the uranium market is highly volatile and vulnerable on several national and international fronts, including geopolitical risks, regulatory action and competitive risk associated with the prices of other energy sources. As always, investors should do their due diligence before adding any stock, fund or ETF to their portfolio.

I am always happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You may just see your question answered in a future ETF Talk.