URA Vs. NLR: Best Uranium Exposure?

November 16, 2010

Last week, Global X launched a new uranium miners ETF. But is it really better for investors than the existing nuclear stocks fund, NLR?


Global X Funds' launch of its newest commodity ETF really perked my interest last week. The Global X Uranium ETF (NYSEArca: URA) is a concentrated ETF composed of 23 stocks in the very-niche area of uranium mining.

Uranium mining stocks have been somewhat of a mystery for American investors, because only a few currently trade on the major U.S. stock exchanges. What's more, uranium and the greater nuclear energy industry both still struggle with negative public perception decades after the occurrence of two reactor accidents: one overblown (Three Mile Island), and one based on human error and lack of oversight (Chernobyl).

The reality is that the U.S. currently generates 20 percent of its electricity from nuclear power plants, a figure expected to only increase in the future. Outside the U.S., there will be significant growth as well; currently 61 new nuclear power plants are under construction, adding to the current total of 411, according to the Nuclear Energy Institute. Morgan Stanley estimates another 147 plants will come online worldwide in the next 10 years.

According to the World Nuclear Association, demand for the uranium that powers the nuclear plants should increase by 24 percent through 2015. Much of this growth will come from emerging markets: China is expected to increase its nuclear capacity sixfold, while India will add another 20-30 new reactors by 2020.

But just like any other mineral we get from the ground, uranium can be costly and time-consuming to mine. So as the supply/demand curve swings in favor of higher prices, it should increase the margins for the uranium mining companies. URA, which concentrates on the world's major uranium miners, seeks to profit on that trend.



The biggest difference between URA and the Market Vectors Nuclear Energy ETF (NYSEArca: NLR) is the composition of their portfolios.

URA tracks an index concentrating solely on the uranium mining industry. Meanwhile, NLR may have its largest exposure in the uranium mining stocks (40 percent), but the ETF isn't a pure play on the sector. NLR also invests in nuclear generation (23 percent), plant infrastructure (19 percent), uranium storage (5 percent) and several smaller narrow-market segments that make up the remaining 13 percent.

The two ETFs' country allocations also vary greatly. URA is heavily invested in Canada (50 percent) and Australia (31 percent), with the U.S. making up 14 percent, and the U.K. 5 percent.

The breakdown for NLR, on the other hand, is more diverse and U.S.-heavy, with the U.S. accounting for 29 percent. This is followed by China (27 percent), Germany (22 percent), Taiwan (10 percent), Norway (8 percent) and Canada a mere 3 percent.

While some of the funds' top holdings do show some overlap, there are still some noticeable differences. URA's largest holding is the Canadian uranium miner Cameco (NYSE: CCJ), which accounts for 18 percent of the portfolio. CCJ is NLR's No. 3 holding, and makes up just 8 percent of the portfolio.

URA's No. 2 and 3 holdings (Uranium One and Paladin Resources) make up another 25 percent of the ETF and are also top ten holdings in NLR. But NLR's top two holdings are actually utilities: Exelon Corp (NYSE: EXC), based in the U.S., and Electricite de France, a French utility.

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