The earthquake that hit northern Japan on Friday thoroughly devastated a significant portion of the Japanese countryside, leaving thousands dead and hundreds of thousands homeless. While the loss of life and property due to the quake and tsunami was catastrophic, the events last week appear to be just the start of the country’s problems as many are growing extremely concerned over a situation brewing at one of the country’s 53 nuclear power reactors.
At the Fukushima nuclear power plant, the earthquake and ensuing tsunami set off a chain of events that have made it difficult to cool the uranium off to prevent the reactors from overheating. After trying desperately to flood the reactor with both seawater and boron, a process which has more or less been unsuccessful, authorities are unsure of how to proceed. This failure led to a ‘hydrogen explosion‘ at the plant in question according to the Tokyo Electric Power Company, the operator of the reactor in question, as well as reports of radiation being detected over 100 miles away on the American 7th Fleet.
The company’s focus now turns to reactor number two where the fuel rods were exposed to the air and the heating and cooling system now seem beyond repair. With uncertainty swirling, many are beginning to wonder if a full-scale nuclear meltdown is upcoming, adding an environmental disaster to the existing economic and humanitarian crises. The worst case scenario would be “that some of the fission fragments and fuel could be widely dispersed if the vessel was to explode,” said Paddy Regan, a nuclear physicist at Surrey University. “This seems unlikely at present, so the next worst would likely be ongoing venting of the steam which has built up in the reactors.” [see Japan ETFs In Focus After Devastating Quake]
With fears over a full scale nuclear meltdown intensifying, investors fled the nuclear power and uranium industries on Monday, sending prices sharply lower. Investors are growing increasingly worried that the explosions at the plant and possible slack demand from countries around the world could set the nuclear power industry back by years, undoing more than three decades of public relations work and relatively impressive safety records since the Three Mile Island accident in 1979. As a result, most of the biggest uranium mining stocks were off more than 20% on the day while a host of other companies involved in nuclear power plant construction and other related activities also saw prices plunge in Monday trading [see Ten Commandments of ETF Investing].
“This is obviously a significant setback for the so-called nuclear renaissance,” said Peter Bradford, a former member of the U.S. Nuclear Regulatory Commission. “The image of a nuclear power plant blowing up before your eyes on a television screen is a first.” In light of this disaster, we profile four funds that were directly impacted by the quake and its complete devastation on the nuclear power industry across the globe:
Market Vectors Uranium+Nuclear Energy ETF (NLR): Down 12.3%
The most popular fund tracking the nuclear power industry, NLR tracks the DAXglobal Nuclear Energy Index, a benchmark that provides exposure to publicly traded companies worldwide that are engaged in various aspects of the nuclear energy business. Its top holdings include one of the world’s biggest uranium miners Cameco Corp (8.4%) as well as two of America’s biggest nuclear power-centric utility companies: Constellation Energy Group (8.3%) and Exelon Corp (8.2%).
PowerShares Global Nuclear Energy ETF (PKN): Down 11.5%
Despite having heavy exposure to Japanese securities–they make up close to one-fourth of the fund’s portfolio–PKN managed to outperform its larger counterpart during Monday’s session. Top holdings of this fund include European-based nuclear companies such as Areva and E.ON, although Japanese firm Toshiba as well as a number of mining firms make their way into the top five holdings as well. PKN also saw saw its volume spike to levels ten times greater than normal as traders sought to take advantage of the rapidly changing sentiment in the industry [see Definitive Guide To Clean Energy ETFs].
iShares S&P Global Nuclear Energy Index Fund (NUCL): Down 8.0%
When looking at NUCL’s top ten individual holdings, one might assume that NUCL was one of the hardest hit funds in the industry. Its allocations include significant weightings to uranium mining giant Cameco and Mitsubishi Electric, as well as Mitsubishi Heavy Industries as well as The Tokyo Electric Power Company–the firm that owns the nuclear power plants at risk of total meltdown. Nevertheless, the fund was down just over 8%, a smaller decline in comparison thanks to its heavy weighting in utilities, which make up just over 40% of the fund’s total assets. This strategy managed to shield NUCL from at least part of the downturn, a remarkable feat considering Japanese securities comprise more of this fund than any other country.
Global X Uranium ETF (URA): Down 17.4%
By far the hardest-hit sector in the industry was uranium miners, which can be accessed via Global X’s URA. The fund, which normally trades about 300,000 shares per day, saw volume spike to just under three million shares, showcasing just how significant trader interest was in this segment of the market today. The fund, which tracks the Solactive Global Uranium Index, holds about 25 securities in total, offering especially heavy weightings towards Cameco Corp (CCJ), Uranium One (UUU), and Paladin Energy (PDN). All three of these companies had abysmal performances on heavy volume; CCJ was down over 12%, PDN lost over 20% in Toronto trading, and UUU fell by close to 28% on the day [see holdings of URA here].
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Disclosure: No positions at time of writing.