Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the nuclear energy industry to thrive as our planet continues to demand more and more energy and the recent Gulf oil spill reminds us that oil is problematic, the Market Vectors Uranium+Nuclear Energy ETF (AMEX: NLR ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The Market Vectors ETF's expense ratio -- its annual fee -- is a relatively low 0.57%.
This ETF doesn't have the most impressive performance history, lagging the S&P 500 over the past three years. But it's still quite young, and what matters most is your expectations of its holdings, and thus its future. As with most investments, of course, we can't expect outstanding performance in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
What's in it?
Several of this ETF's components made strong contributions to its performance in 2011. Exelon (NYSE: EXC ) , with an attractive dividend yield near 5%, has gained about 10% so far this year. Most of its electricity generation comes from nuclear power, but it also deals in fossil fuels and is expanding into alternative energies, having bought Deere's (NYSE: DE ) renewable energy business. It also aims to buy Constellation Energy (NYSE: CEG ) .
Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. Uranium centrifuge maker USEC (NYSE: USU ) is down 77% in 2011, partly because it didn't land as big a loan guarantee as it needs from the Department of Energy for research and development. It also sports high short interest. In general, uranium companies have had a tough year, with Ur-Energy (AMEX: URG ) , for example, down by two-thirds.
The big picture
Demand for energy isn't going away anytime soon, and despite the recent disaster in Japan, nuclear power remains in demand. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.