Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some companies focused on nuclear energy to your portfolio, the Market Vectors Uranium+Nuclear Energy ETF (NYSEMKT: 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 0.60%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF's performance is ... well, not so great. It has underperformed the world market over the past three and five years. Still, it's the future that counts much more than the past. And as with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
If you don't like the idea of fossil fuels, or think that their demand and/or supply will run out too soon, you might want to consider nuclear-focused companies. Nuclear power has many detractors, but it also makes sense to a lot of people, and permits are being issued for more plants.
Some nuclear-power-related companies had strong performances over the past year. US Ecology (Nasdaq: ECOL ) surged 35%, for example, focusing on waste treatment, disposal, and recycling, including radioactive materials. In its second-quarter earnings presentation, management noted some work with oil and gas drilling waste, noting that it could become a new market for the company.
Other companies didn't do as well last year but could see their fortunes change in the coming years. Down 24% over the year is EnergySolutions (NYSE: ES ) , another company involved in nuclear clean-ups, even doing some work at Japan's Fukushima disaster site. It does sport positive free cash flow, but it has also been posting net losses in recent years, and carries a lot of debt. Management at the company is rather new, and in a recent conference call, the CEO noted that EnergySolutions needs to be more focused and to lower its costs, among other things.
Down 12% is Exelon (NYSE: EXC ) , America's largest nuclear-power company -- which is also involved in more traditional energy-generation businesses It's not a very volatile stock, but it's trading near a 52-week low, suffering in part because of the relatively high cost of nuclear energy in an environment of very low gas prices. The current situation won't last forever, though, and for patient investors, the stock recently yielded 5.9%. It carries a lighter debt load than many peers as well, and it's expanding into solar and wind power.
Canada-based uranium specialist Cameco (NYSE: CCJ ) shrank by about 8%, but it expects demand to pick up as gas and coal prices eventually rise, and because of new nuclear plants being built. Southern (NYSE: SO ) has permission to build two, and SCANA (NYSE: SCG ) also plans to build two. China is also expected to demand more uranium over time.
The big picture
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.