Black Hole Sun: More Downside For Solar ETFs? (TAN, KWT)
Select solar stocks and the corresponding exchange traded funds were on the receiving end of some much needed upside today on news Commerce Department tariffs Chinese-imported solar panels were smaller than industry experts had been expecting, coming in the 2.9%-4.73% range.
The news is significant though as American imports of Chinese solar panels have soared from $21.3 million in 2005 to $1.15 billion in 2010 and $2.65 billion last year, according to the New York Times.
Softer-than-expected duties on solar panels sent Trina Solar (NYSE: TSL) higher by almost 8% on roughly double the average daily turnover while Yingli Green Energy (NYSE: YGE) jumped almost 13% and nearly 2.5 times its average daily volume.
JA Solar (Nasdaq: JASO), a stock that has been fighting to stay above micro-cap status, rose 4.4% on better than double the average daily turnover. The list goes on and you get the picture: It was basically a good day for Chinese solar stocks.
The impact was more muted with ETFs, though. The Guggenheim Solar ETF (NYSE: TAN) added just 1.3%, but the gain was scene on more than triple the average daily turnover, while the rival Market Vectors Solar Energy ETF (NYSE: KWT) climbed 1.5% on strong volume.
Even with the good cheer on Tuesday, calling a bottom in solar stocks and ETFs has proven to be hazardous work. Solar companies have tried to make up for crimped margins with high volume. It hasn't worked. As the Times noted, plunging prices led to the bankruptcy of three American solar panel manufacturers last August.
Worse yet, industry experts believe prices will continue declining along with solar installations. The end of government subsidies, falling prices and declining margins help explain a startling fact: At the start of trading on March 20, 2012, the Guggenheim Solar ETF and the Market Vectors Solar Energy ETF were both nearly five years old. In those five years, each ETF has plunged almost 90%.
Earlier this year, TAN went the reverse split route but the outcome has been predictable. TAN's reverse split went into effect on February 15 and since then, the ETF has tumbled more than 13%.
At barely over $4, KWT would appear to be a valid reverse split candidate, but there may not be a point to the reverse split gambit for solar ETFs. TAN's tumble says as much.
In fairness, it should be acknowledged that these downtrodden funds are up on a year-to-date basis, but that only adds to the cautionary tale. Part of the caution that needs to be applied to TAN and KWT regards their dividend yields. TAN yields 7.2% and KWT is at almost 5.4%, but since the ETFs' constituents look more like value traps than legitimate value plays, that implies the ETFs themselves are yield traps.
One day does not beget a trend and it's going to take a lot more sunny days to clear up the dark over hovering around TAN and KWT.
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