The Japanese economy faced a difficult time in fiscal 2011 following the devastating earthquake and tsunami. To add to this were several explosions that occurred in the Fukushima nuclear power plant.
Following the Fukushima disaster, the nuclear industry nearly collapsed and badly impacted the uranium sector (Uranium ETF Meltdown: Can Nuclear Power Bounce Back?).
Demand for uranium decreased soon after the catastrophe as many nuclear plants were shutdown and more projects were delayed. With supply outstripping demand, the price of uranium fell drastically. Subsequent to a slump in the uranium sector, ETFs tracking the sector were beaten down to more than half of its trading prices pre-disaster.
The funds experienced a massive fall in their asset bases as well, volume and price as investors shied away from investing in uranium. Global X Uranium ETF (URA - ETF report) plunged nearly 60% by Jun 2011 to almost $7. Market Vectors Uranium + Nuclear Energy ETF (NLR - ETF report) showed a similar downward trend in its performance during the period.
Although the sector struggled to show some strength in the past year the efforts were far from enough to bring about a rebound (Can the Uranium ETF Hold On To Recent Gains?).
But it seems that Japan’s national election has finally turned the fate of the sector. Since the new government under Prime Minister Shinzo Abe came into power after the mid-December elections, it appears that the worst may be over for the sector (Play a Resurgent Japan with These Three ETFs).
Uranium funds have seemingly bottomed out and are all set to pull back as Abe may give his consent to start some of the nuclear reactors in the latter half of this year.
Another factor which would boost the price of the commodity is the plan of China, India and Russia to set up 130 nuclear reactors. China plans to have its nuclear power capacity reach 40 million kilowatts by 2015 from 12.54 million kilowatts at the end of 2011. Other nations like France, Romania, South Korea, Bangladesh, Turkey and the UAE are also focusing on the development of the industry.
Also, the need for new energy sources has resulted in rising demand for uranium. For many countries, nuclear energy plays a very important role in order to avoid the negative effects of using coal (3 Energy ETFs for America's Production Boom).
The attempt to reduce dependence on greenhouse gases makes nuclear energy an important source. With the significant rise of nuclear energy in developed emerging markets, one way to play the trend would be by way of investment in uranium.
Investing in uranium represents a rewarding prospect for investors. Investors looking to capitalize on the next upswing in the commodity in a basket form have a few options available:
Global X Uranium ETF (URA)
URA offers a pure play in uranium with more focus on uranium producers and less on nuclear energy producers. So URA represents an interesting pick for investors in this environment of rising uranium prices (Could This Be the Year for These Mining ETFs?).
The fund manages an asset base of $144.2 million which it invests in a basket of 20 securities. Cameco Corporation, Paladin Energy Limited and Uranium One Inc form the top line of the fund.
For a pure play in uranium, Cameco Corporation represents a compelling opportunity as it is one of the biggest uranium producers and accounts for 16% of the world’s uranium production.
It plays a very dominant role in the performance of the fund, accounting for 18.5% of the fund’s allocation. Cameco is a profitable uranium miner and is blessed with high quality assets providing a lucrative way to have direct exposure to the industry.
The fund had delivered a return of negative 19.5% over a period of one year. However, the return in the past month is evident of the trend reversal in the industry. The fund gained 9.13% in the past one month while charging a fee of 69 basis points.
Market Vectors Uranium + Nuclear Energy ETF (NLR)
URA has an edge on NLR in terms of exposure when it comes to uranium investing. NLR is more inclined towards nuclear energy companies and less on uranium producers.
NLR also provides exposure to 20 companies and manages an asset base of $81.4 million. Cameco Corp occupies the second position in the fund while Mitsubishi Heavy and Edf FP hold the first and third spots. The fund charges a fee of 60 basis points on an annual basis.
The fund delivered a negative return of 3.53% over a period of one year. However, the recent performance of the fund ensures a rebound in the sector. The fund delivered a return of 5.81% in the last one month.
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