For those old enough to remember, there certainly was a time when nuclear power was taboo. There was the stigma of the nuclear arms race following the deployment of two atom bombs during World War II and the 1986 Chernobyl disaster in Ukraine – then a republic of the Soviet Union – didn’t help nuclear’s image.
Despite the once jaundiced image of nuclear power, it is clean energy – arguably the cleanest , although some in the renewable energy crowd don’t want to admit as much. Plus, despite all the negative chatter, nuclear accounts for 10% of power generated around the world and that percentage doubles in some developed economies, according to the International Energy Agency (IEA). Still, nuclear isn’t perfect.
“Nuclear power faces a contrasted future despite its ability to produce emissions-free power. With large up-front costs, long lead times and an often-poor record of on-time delivery, nuclear power projects have trouble in some jurisdictions competing against faster-to-install alternatives, such as natural gas or modern renewables. It also faces public opposition in many countries,” adds the IEA. “Its uncertain future could result in billions of tonnes of additional carbon emissions.”
In more positive news, nuclear investing is experiencing a renaissance of sorts and could be worthy of small positions for clean energy-enthused clients.
Proof Is in Nuclear Pudding
Past performance is not a guarantee of future returns, but the past three years have been a highly rewarding period in which to be engaged with nuclear energy assets.
Over that time the, VanEck Uranium+Nuclear Energy ETF (NLR) and the Global X Uranium ETF (URA) returned 57.5% and 153.3%, respectively. That was during a stretch in which President Biden won the 2020 election and his Inflation Reduction Act, which was seen as a catalyst for renewable energy stocks, was passed. Conversely, the S&P Global Clean Energy Index shed 36.3% over that period and was significantly more volatile than the two nuclear-related ETFs.
As noted above, it’s likely that some clients may be skittish about nuclear investing while others may be nervous that the asset is overheated. Fortunately, the aforementioned rallies by NLR and URA are rooted in solid fundamentals.
“The global shift towards clean energy has cast a spotlight on the nuclear energy and uranium industries as potential, or even necessary, contributors to a low-carbon energy future. Nuclear power is seen as a viable alternative to fossil fuels as it generates a substantial amount of electricity with minimal greenhouse gas emissions,” according to VanEck Research. “This perspective has fostered a renewed interest in nuclear energy leading to new nuclear power projects, research into advanced nuclear technologies, and the exploration and development of new uranium mining sites to meet anticipated demand.”
Nuclear Investing Made Easy
Two things can be and are true. First, nuclear power isn’t “risk-free” power, but it is a known entity and applicable regulations in developed markets are stiff, helping mitigate the potential of a Chernobyl sequel.
Second, the investment community, politicians, regulators and some in renewable energy circles increasingly view nuclear as important and relevant in the clean energy conversation. Bottom line: ETFs such as NLR and URA can be tactical complements within broader portfolios.
“NLR can be integrated into an investment portfolio as a long-term strategic allocation providing both diversification benefits and access to the potential growth opportunity amidst the global push towards clean energy,” concludes VanEck. “Additionally, because of its targeted exposure, NLR can be used more tactically by investors to express a shorter-term view of the nuclear energy industry in an efficient and low-cost way.”