Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the nuclear energy industry to prosper over time, the PowerShares Global Nuclear Energy ETF (NYS: PKN) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in a lot of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.75%. That's steeper than many ETFs, but still considerably lower than the typical stock mutual fund.
This ETF doesn't have the best track record, losing to the S&P 500 over the past three years. Still, it's very young, with just a few years on the books. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 25%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several companies involved in nuclear energy had strong performances over the past year. Duke Energy (NYS: DUK) , for example, gained 21%. Some are worrying that new, low-carbon-emission limits from the EPA could hurt utility companies and make them convert plants from coal to natural gas, but Duke is already building new natural gas plants (and some coal ones, as well). It has also been trying to buy Progress Energy and is waiting to see if gets approval for that.
FirstEnergy (NYS: FE) gained 24%, despite having had to deal with rising fuel prices that have pressured its bottom line. It has been expanding into new territories and challenging competitors, and is also building additional coal plants. It offers an appealing dividend near 5%, though with a high payout ratio, the dividend might not rise quickly.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Nuclear powerhouse Exelon (NYS: EXC) shed 2%, affected by the low cost of natural gas. The company remains strong, though, and generates a lot of cash flow. It recently offered a 4% dividend yield, as well, which it has been hiking by an annual average of nearly 24% over the past five years. Exelon also stands to benefit from recent expansion of nuclear power in the U.S.
Another beneficiary, and probably a more immediate one, is General Electric (NYS: GE) . GE participates in the construction of nuclear plants, among other things, and several new plants have received approval. General Electric's fans also appreciate its diversification, as it's involved in businesses such as aviation and finance, as well as energy. The stock gained 2% over the past year.
The big picture
Demand for energy isn't going away anytime soon, and even the recent Fukushima disaster doesn't seem to have turned most people off of nuclear power. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
Learn about four ETFs you can count on. If you'd like to make money off the global demand for energy but don't want nuclear-heavy companies, then check out our special free report, "3 Stocks for $100 Oil," to learn about some compelling oil-centric stocks.
At the time thisarticle was published
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