In view of last week’s event in Japan, it’s only logical that “Uranium ETFs Slammed While Solar ETFs Rally in Wake of Japan Nuclear Blasts:”
It should come as no surprise that Uranium stocks are down with the predictable anti-nuclear backlash coming worldwide in the wake of the events unfolding in Japan. One question is whether the market reaction is overblown, as often happens, or whether this is just the beginning of the demise of nuclear power in the world. Seemingly, issues with various energy sources take turns attracting bad publicity.
In the US, natural gas has been in the news lately with concerns over fracking. We had the BP disaster in the gulf last year. Solar has never really come into its own without heavy subsidies, and prices at the pump have rising again amid turmoil in the Middle East. That had left a strong secular case for nuclear power and uranium ETFs. But everything has changed. Today’s market action in various energy classes pretty much says it all. Nuclear energy shares were slammed while solar rocketed up in an overall down day for global indices Monday:
URA – Gobal X Uranium ETF – Down 17% – This ETF has a pretty concentrated portfolio of 23 companies, with most of them located in Canada, Australia and the US. Top holdings include Cameco (CCJ), Uranium One (UUU.TO) and Paladin (PDN.TO). Leading up to this event last week, on the year, URA was already down 8% versus a gain of 3% on the S&P500 (SPY). Friday was another leg down and then Monday was a complete collapse. It may not be politically feasible to advance a new nuclear site in the west for decades to come.
NLR – Market Vector Uranium & Nuclear Energy ETF – Down 12% – NLR had at least been flat on the year leading up to the quake, but also lost double digits during Monday’s session. NLR is a bit more broadly diversified across a range of miners, larger utilities and even coal and gold outfits like Coalcorp mining (CCJ.TO) and Fronteer Gold (FRG).
KWT – Market Vectors Solar Energy ETF – Up 7% – KWT had been up around 7% on the year prior to the event, and with today’s action, the 2011 returns have doubled to 14% with likely follow-through as investors start considering where to place their energy bets next. With one major energy source about to undergo scrutiny the likes of which the industry has never seen, solar will likely begin to get more serious attention, subsidies or not. Governments may very well consider subsidies well worth the price of avoiding a situation similar to the one playing out in Japan presently.
TAN – Guggenheim Solar ETF – Up 7% – TAN is a holder of solar producers globally, with First Solar (FSLR) comprising a disproportionate 20% of the makeup, suggesting a strong performance indicator will be based on First Solar’s performance alone. Year to date, TAN had been roughly even with the returns of the S&P500 (SPY) at 3%, but as of today, total YTD returns stand at 7%.
Until more is known on the ultimate outcome from the events in Japan and the reaction in various regions, there is no “sure” bet here. Given the inevitable world energy needs, a safer bet during this time of uncertainty may just be existing suppliers of energy to business and consumers via Utility Stock ETFs. Investors have often enjoyed the high yields, low volatility and decent lower asset correlation than typical broad market funds that utilities have to offer.
The above was written early in the week, so the losses and gains shown are not up to date. Here are the week-ending returns for the nuclear and solar ETFs:
As is the case most of the time when natural disasters strike, the reaction tends to be overblown. To discount nuclear energy in the future is simply not being realistic. I can see where nuclear facilities in earthquake prone areas may be limited, but they will remain part of our energy source just as solar facilities will have their place as well.
Volatility in both of these energy arenas remains high, and investments should only be made by those with a very aggressive component in their risk profile. That’s a nice way saying if you have the overwhelming urge to get involved in this market, use play money only.
Disclosure: No HoldingsContact Ulli