McCall’s Call: Japan Disaster And ETFs

March 15, 2011


Nuclear ETFs

On top of the mass casualties and destruction caused by the earthquake, the damaged nuclear power plants loom as a major concern for Japan and the world, as the radiation rescue workers have detected risks being carried on the wind to areas both in Japan and far way.

This turn of events has caused investors to run from any stocks related to nuclear power generation.

The most actively traded ETF in the sector is the Market Vectors Nuclear Energy ETF (NYSEArca: NLR), which was off 20 percent on Tuesday morning from Friday’s closing price.

The ETF is composed mainly of stocks in the uranium mining, nuclear generation, and plant infrastructure sectors. The fear is that nuclear power generation will take a major hit in the months and years ahead, slowing the demand for everything from uranium to new power plants.

An ETF that is even more concentrated than NLR is the Global X Uranium ETF (NYSEArca: URA). The Global X fund is down over 15 percent through Tuesday, from Friday’s closing price.

It’s composed of 23 stocks, mainly Canadian and Australian companies, with the mega-miner Cameco (NYSE: CCJ) making up 18 percent of the portfolio. CCJ has fallen over 20 percent so far this week to a fresh five-month low.

To Sell Or To Buy?

After a natural disaster and a subsequent market sell-off, the debate begins as to whether investors should turn into vultures and start buying depressed stocks. Or conversely, should they continue to be cautious, selling and not consider buying until all the unknowns are gone?

I tend to fall in the middle. I’m definitely not the panic-selling type of investor because, as history shows, this is typically not the best strategy. Indeed, it often results in selling at the lows.

At the same time, being a vulture is difficult, because you have to have money to lose and have the patience to let the market rally if you are too early to the party.

As far as Japan is concerned, I would hold off on buying EWJ or any Japanese-related ETFs for a couple weeks. There could be more downside before a rally occurs.

But the yen will continue to be a staple in our portfolios for a number of reasons.

Also, my sense is that nuclear-related investments constitute the one area where vultures can begin to nibble, for at least a short-term rally, off the panic selling.

And, last but not least, my heart goes out to everyone that has been affected by this horrible disaster.

Matthew D. McCall is editor of The ETF Bulletin and president of Penn Financial Group LLC, a New York-based wealth management firm specializing in investment strategies using ETFs.

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