Black Hole Sun: Shorts Keep Targeting Solar ETF And Its Holdings

Millennials, don't worry if you don't get the song being referenced in the headline. It paints the picture of the current state of affairs for the Guggenheim Solar ETF TAN and its holdings.

Over its more than eights years on the market, TAN has spent ample time as either one of the most heavily shorted ETFs around or home to some of the most heavily shorted stocks. Those themes are being renewed as short sellers eagerly target residential solar providers, including some that are found among the 25 stocks held by TAN.

"As leasing solar installations become less attractive versus upfront purchase as costs decline, the extension to tax credits adds to competitive dynamics expected in the US residential market. With incumbents losing barriers to entry, short sellers have begun to increase their positions. This has seen average short interest across the Guggenheim Solar ETF (TAN) increase to above 8%," according to Markit. 

Markit notes short sellers have been eager to short shares of Elon Musk's SolarCity Corp SCTY, among other solar names. SolarCity is TAN's fifth-largest holding at a weight of 5.6 percent as of May 27.

"With a fifth of its shares currently out on loan and the most shorted constituent of TAN currently, short interest in Solarcity has surged back towards the record highs last seen in November 2015. The company has come under increasing pressure, along with other solar panel leasing firms as the industry begins to mature and sales growth slows," adds Markit.

If there is a silver lining for TAN and its constituents, it's that solar stocks are trading at steep discounts relative to historical norms.

Another catalyst widely viewed as positive: Earlier this year, Congress introduced legislation that includes an extension of the solar investment and wind protection tax credit. Solar stocks still have an oil problem— as in falling oil prices are problematic for the solar industry because inexpensive oil takes some of the shine off alternative fuel sources. In January, Barclays said it's "broadly positive on the solar space due to the combination of policy certainty supporting demand and weakness in energy prices providing an attractive valuation entry point."

Although short sellers are targeting TAN's holdings, the ETF itself has not drawn attention from the bearish solar crowd as just one percent of its 10.5 million shares outstanding are on loan to shorts, according to Markit.

Based on $231.8 million in assets under management as of May 31, just $2.318 million of TAN's assets under management is controlled by short sellers.