In my last column, I noted that we are on the cusp of a resurgence in nuclear power generation.
According to the National Oceanic and Atmospheric Administration, this year was host to the third-warmest April, third-warmest June and 11th-warmest July on record for the U.S.
And last year, the year before that and the year before that were the three warmest years on record for the entire globe.
This is having severe consequences, including heavier storms, greater droughts, warmer and more acidic oceans, greater extinction of species, the loss of coral reefs, and an average rise in sea levels.
If you’re a global warming skeptic – as I once was – have a chat with a few reinsurance executives. With trillions in liabilities at stake, they can’t afford to have “political opinions” about climate change.
Halfway through 2018, the U.S. has already experienced six $1 billion weather disasters, including wildfires, flooding, droughts and the largest fire tornado in history.
The president of the Reinsurance Association of America says climate change could bankrupt his industry. (Even fossil fuel producers like Exxon and Shell have declared the urgent need to manage the risks.)
However, the world’s population of 7.6 billion keeps growing. And no one wants to use less power.
So we will continue to depend on fossil fuels, particularly natural gas and coal for electricity.
No one believes that dumping 38 billion tons of carbon dioxide into the atmosphere each year is a good thing, of course.
Yet solar, wind, hydro and thermal are not yet ready for prime time. And the natural gas bounty in this country does not exist overseas.
That’s why a resurgence of nuclear power is a safe bet.
Ted Nordhaus and Michael Shellenberger of The Breakthrough Institute, an environmental think tank, recently summarized the calculations of an increasing number of climate scientists:
There is no credible path to reducing global carbon emissions without an enormous expansion of nuclear power. It is the only low carbon technology we have today with the demonstrated capability to generate large quantities of centrally generated electric power.
Yes, there are negative public perceptions about nuclear power in the wake of the Three Mile Island, Chernobyl and Fukushima disasters.
But a new class of reactors – funded by investors like Microsoft founder Bill Gates and others – are considerably smaller, safer and cheaper than older models.
(Many generate 50 to 300 megawatts and use no pumps and motors. They rely on passive means – such as gravity and conduction – to cool the reactors.)
We are headed into a future where nuclear power is cleaner, more efficient and less expensive.
And – again – there is no serious alternative if we want to significantly reduce carbon emissions from electricity generation.
So how does an investor play it?
Some will reflexively suggest uranium companies like Cameco (NYSE: CCJ) or Uranium Energy Corp. (NYSE: UEC).
This is a risky strategy. Uranium prices – like all commodity prices – are notoriously difficult to predict.
There is a better and more diversified approach: a nuclear power exchange-traded fund (ETF).
No, not ones like the VanEck Vectors Uranium+Nuclear Energy ETF (NYSE: NLR) that have most of their assets in ho-hum utilities with a nuclear component.
A far better choice is Global X Uranium ETF (NYSE: URA), which recently shifted its focus from small caps to larger caps with the goal of replicating the performance of the Solactive Global Uranium & Nuclear Components Total Return Index.
It’s a small fund with net assets of just $352 million. But it gives you broad exposure to uranium producers as well as manufacturers and assemblers of advanced nuclear power plants.
The fund’s largest holdings include Cameco, NexGen Energy, Uranium Participation Corp., Hyundai Engineering and Construction, Ur-Energy, Macquarie Group, Mitsubishi Heavy Industries, CGN Mining, GS Engineering & Construction, and Daewoo Engineering & Construction.
Nuclear power is out of favor right now, to put it mildly. That’s why the average stock in the portfolio trades at a 30% discount to the price-to-earnings ratio of the S&P 500 and sells for just 1.3 times book value and 80% of sales.
However, the World Nuclear Association reports that nuclear power capacity is increasing steadily, with approximately 50 reactors currently under construction.
In all, about 150 power reactors with a total gross capacity of 160,000 megawatts are on order or planned. And approximately 300 more are proposed to meet rapidly rising electricity demand.
Does that mean this ETF will bolt higher overnight?
No. But as more investors – and more governments – accept the fact that there is no better way of reducing our carbon footprint, nuclear power generation is bound to increase.
So sock this ETF away in your retirement account. Or, better yet, buy it for your kids and grandkids.
One day they – and the rest of the planet – will thank you.