Nuclear stocks have been an undisputed bright spot in the market this year, with the Range Nuclear Renaissance Index (NUKZX) up 57.4% year to date through November 25 even with recent weakness. This compares to the traditional oil and gas equity benchmark up 2.3% year to date on a price-return basis, while the S&P 500 is up 15.0%.
When it comes to nuclear, advisors are most excited about the growth potential for small modular reactors (SMRs) based on a survey from earlier this month (read more). Companies developing SMRs include NANO Nuclear (NNE), NuScale Power (SMR), and Oklo (OKLO). While the potential for SMRs is significant, their development is still in relatively early days. Keep in mind that there are no SMRs operating in the US today.
SMR developers were seeing impressive gains this year, particularly OKLO, with the opportunity set surrounding AI data centers adding to momentum. However, the space hit a roadbump in mid-October. As shown below, NNE, SMR, and OKLO were all down noticeably from October 15 through November 25. This coincided with some weakness in the technology space, as well as some media scrutiny. To be fair, 29 of 48 NUKZX constituents were down for the period, but the SMR developers were among the weakest performers.
While NNE, SMR, and OKLO are constituents of NUKZX, their weakness did not weigh that much on index performance, which is down 12.0% since mid-October as shown below. For context, other popular, passive nuclear/uranium focused ETFs are down over 20% for the same timeframe. Those ETFs had more exposure to OKLO and SMR at the end of September based on quarterly fact sheets.
For investors, it is important to remember that the exciting potential of SMR development doesn’t come without risk. Beyond pure execution risk, pre-revenue companies carry additional financial risks.
One of the advantages of the approach for NUKZX is that advanced reactors, which represent 30% of the index, include a mix of startups and established companies. Besides OKLO, NNE, and SMR, the advanced reactor group includes diversified industrial companies Lockheed Martin (LMT), Rolls-Royce Holdings (RR.LN), and GE Vernova (GEV).
With 124 SMRs under development globally, it is a competitive landscape. It can be difficult to pick winners and not every SMR developer is going to succeed. With that context, it is important that ETFs or their underlying indexes not be overexposed to one company or one technology. Within NUKZX, the 35% weighting to construction and services and 30% weight to utilities complements the exposure to SMR developers (read more).
With a wide range of participants in the nuclear power space with different risk profiles, it can be beneficial to use a diversified approach to access this exciting space.
NUKZX is the underlying index for the Range Nuclear Renaissance Index ETF (NUKZ).
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Related Research:
Advisor Poll: SMRs & AI Lead Multifaceted Nuclear Investment Case
Not All Nuclear Exposure Created Equally
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