Brand-New Nuclear Energy ETF is one of 2024’s Hottest ETFs
The brand new Range Nuclear Renaissance ETF (NUKZ) is one of the hottest ETFs of 2024, gaining nearly 70% since its launch in January. And while AI and large-cap tech have gotten most of the limelight from investors this year, NUKZ focuses on a different segment of the market entirely – nuclear energy. That said, NUKZ is still an intriguing way to potentially gain backdoor exposure to the growth of AI, the growing need for data centers, and other big tech themes.
I’m bullish on NUKZ due to its impressive performance and its exposure to uranium producers, utilities, and manufacturers that are essential for the potential shift toward nuclear energy. This transition is becoming increasingly urgent as the need for sustainable energy solutions becomes more evident.
The NUKZ ETF was launched on January 23, 2024, by Range ETFs. It is still a small fund with $40.7 in assets under management (AUM), but it picked a good time to debut as investor interest in nuclear energy is reaching new heights in 2024.
According to Range ETFs, NUKZ “is designed to provide exposure to companies that are involved in the following segments: advanced reactor, utilities, construction & services, and fuel.”
Nuclear energy is a clean and efficient form of energy. It produces no greenhouse gases, and it is more efficient and reliable than solar or wind energy.
The U.S. Department of Energy’s Office of Nuclear Energy finds that the typical nuclear plant has a capacity factor of 92.5%, meaning it is working at full capacity 92.5% of the time, versus just 35.4% for wind and a paltry 24.9% for solar. Nuclear energy is a baseload energy source that is more reliable than solar and wind.
Consulting firm McKinsey forecasts that electricity demand will triple by 2050, so there is clearly a need for the efficient and clean baseload energy that nuclear can provide. Plus, with so much demand likely to come online, there is room for multiple winners as nuclear, solar, wind, and natural gas will all be needed, so this isn’t a zero-sum game.
The AI revolution is also putting a finer point on this growing demand for power. More data centers are being built to house the computing power that hyperscalers need to power their AI solutions, and nuclear energy can play a key role in providing them with clean energy.
Already, we’ve seen mega-cap tech companies commit to and invest in nuclear energy. Amazon recently announced its support for several new nuclear projects in Washington and Virginia, including the construction of new Small Modular Reactors (SMRs), an exciting new breed of nuclear reactor with a smaller physical footprint and shorter lead time.
Also, Alphabet (GOOG) announced it will buy nuclear power produced by SMRs that will be developed by a company called Kairos Power. Meanwhile, Microsoft (MSFT) struck a deal with major power company Constellation Energy (CEG) to restart the Three Mile Island nuclear plant.
NUKZ owns 39 stocks, and its top 10 holdings account for 53.4% of its assets. Below, you’ll find an overview of NUKZ’s top 10 holdings using TipRanks’ holdings tool.
The fund’s largest holding is Cameco (CCO), the world’s largest uranium producer. Beyond Cameco, NUKZ also owns utilities like Constellation Energy, which maintains the largest fleet of nuclear power plants in the United States with 21 nuclear reactors.
The fund also owns NuScale Power (SMR), which makes the types of small module reactors discussed above.
There’s also a place for Industrials, like GE Vernova (GEV) and Honeywell (HON) within the NUKZ ETF. GE Vernova manufactures nuclear turbine islands used by nuclear plants, while Honeywell operates a uranium conversion facility that makes a component needed for the enriched nuclear fuel utilized by nuclear reactors.
One word of caution is that as a new ETF with relatively low assets under management, NUKZ is an expensive ETF, charging a fee of 0.85%. This means that an investor allocating $10,000 into the fund will pay $85 in fees on an annual basis. This is considerably more expensive than the fees many investors are used to seeing with broad-market index ETFs, and well above the average expense ratio for all ETFs (0.52%).
If the ETF continues to perform well over the long term, the high expense ratio won’t trouble many holders, but it is something for investors to keep in mind, especially if the ETF’s performance begins to lag.
Aside from the high expense ratio, other risks to this investment include the fact that it is a new ETF without a long-term track record, and a very small one at that, so it could prove volatile. Stocks in this space have already had quite a run in 2024, so there could be volatility to the downside.
However, overall, I believe this is still a good long-term investment, as we are still in the early stages of the nuclear story.
Turning to Wall Street, NUKZ earns a Strong Buy consensus rating based on 27 Buys, 11 Holds, and one Sell rating assigned in the past three months. The average NUKZ stock price target of $42.38 implies about 2.0% upside potential from current levels.
I’m bullish on NUKZ due to the increasing demand for clean and efficient baseload energy as electricity consumption rises. The recent embrace of nuclear energy by major tech firms like Amazon, Alphabet, and Microsoft underscores its importance in powering data centers and is attracting new investor interest in these stocks. Moreover, we are still in the early stages of the transition to nuclear energy. While NUKZ has performed well in 2024, there is likely significant upside potential ahead, though volatility is expected along the way.
Additionally, NUKZ provides a solid way to gain broad exposure to the nuclear energy sector, investing in uranium producers like Cameco, utilities such as Constellation Energy, and reactor manufacturers like NuScale.
