Solar ETFs Heating Up (TAN, KWT, FSLR, CSIQ)
More good news hitting the wires today from solar companies have the sector once again red hot and adding to this years monstrous gains. Investors have been piling into the stocks and related ETFs over the last 12 months. But is it based on newfound success and the future prospects or bargain hunting off the lows?
The Guggenheim Solar ETF (NYSE: TAN) is up 160 percent in 2013, but that is after falling by 95 percent from the high in 2008 to the low set in November of last year. The skeptics will view the rally as nothing more than investors playing a short-term bounce in a sector that has no long-term future. While the bulls are pointing to the consolidation in the sector along with the fundamentals improving quarter-over-quarter.
Today several big name solar companies were in the news. SolarCity (NASDAQ: SCTY)is selling $54.4 million in notes that mature in 2026 as it raises money. The stock is surging 16 percent on the news. SunPower (NASDAQ: SPWR) announced it made an acquisition of a company that makes cleaning products for solar panels and the stock gaining over 10 percent. Finally, Canadian Solar (NASDAQ: CSIQ) is gaining 10 percent after raising its third quarter estimates for solar module shipments.
From a technical perspective it is difficult to ignore the rally this year and as long as the momentum remains positive for the sector it could result in higher prices for the stocks and solar ETFs.
Guggenheim Solar ETF (NYSE: TAN)
The ETF is a geographically diversified mix of 31 solar stocks. The heaviest weightings are in China and the U.S. at 37 percent and 31 percent, respectively. The top holding is solar bellwether First Solar (NASDAQ: FSLR) with an allocation of 7 percent. The performance of FSLR has lagged the overall performance of the ETF even though it is the top holding. The stock is up 99 percent versus the 160 percent for TAN.
Market Vectors Solar Energy ETF (NYSE: KWT)
With a similar makeup to TAN, KWT has a portfolio of 33 solar stocks with the U.S. and China making up 57 percent of the allocation. The top holding is China-based Hanergy with FSLR the third largest stock in the ETF. As far as performance, KWT is greatly lagging TAN with a gain of only 117 percent in 2013. The difference is due to the allocation of the solar stocks in each ETF’s portfolio. Even though both ETF hold many of the same stocks, the weighting vary dramatically and this has resulted in differing results.
KWT has total assets of $21.9 million versus $357 million for TAN. Early on TAN became the established leader in the niche sector and it has continued to attract the big money. Because it is viewed as the leader, there is more volume in TAN and therefore the bid/ask spread is narrower, making it more attractive for investors and traders.
The expense ratio for TAN is 0.70 percent, slightly higher than the 0.66 percent for KWT. When all factors are considered, the better option for investors appears to be TAN even though the expense ratio is narrowly above KWT. In the end, performance, volume, and the spread are more important.
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