There are only 2 Solar Energy ETFs in the Market right now – TAN and KWT.Note buying solar ETF provides a less risky way of investing in solar energy as some stocks can dramatically underperform in this fast growing industry.However Solar ETFs will on the other hand perform much worse than the best performing stocks in the solar universe.This is because their holdings are also concentrated on some of the lesser quality companies.KWT and TAN are better investments for the less informed and less sophisticated investors.Amongst the 2 ETFs,KWT is the better option than TAN for a number of reasons which are described below.
The Guggenheim Solar ETF (NYSE:TAN)
1) Index – This ETF follows the equity index called the MAC Global Solar Energy Index
2) Expense Ratio – The Expense Ratio of this ETF is somewhere in the middle with 0.95%
3) Valuation – The average holding of the 34 securities is $1.6 billion with a P/E of 14.6x and P/B of 1.3x which is not very high considering the high growth characteristics of this industry.TAN has been trading between $6-9 in the last 12 months with the current price of $8.
4) Top Holdings – The ETF’s top holding First Solar accounts for around 20% which is quite high.This is the biggest negative apart from the fact that Taiwan does not get enough money.The other holdings like Trina Solar,REC,Meyer Burger and MEMC are lower at around 5-7%.The complete holdings of the 34 securities are listed here.Around 10 stocks have 1% or lower percentage.
5) Geographic Diversification – The company is quite well diversified with USA 41%,China 27% and Germany at 17%.
Market Vectors Solar Energy (ETF) ( NYSE:KWT)
The other Solar ETF KWT is much smaller than TAN at $25 million.However the ETF has performed better than TAN over the last 1 year though over the long term the performance has been more or less the same.
1) Index – This ETF follows the equity index called the Ardour Solar Energy Index
2) Expense Ratio – The Expense Ratio of this ETF is same as TAN at 0.96%
3) Valuation – The total holdings is $40 billion .KWT has not performed to good with around 28% decline in the last year.However its performance has been much better than TAN due to its better portfolio.
4) Top Holdings – The ETF’s top holding First Solar accounts for around 10% .The other holdings like Trina Solar,REC and MEMC are in the 8-9% range.The complete holdings of the 29 securities are listed here.
5) Geographic Diversification – The company is more diversified with USA and China at 30% and Germany at 17%.Taiwan also gets good prominence unlike TAN at around 14%.
KWT is a much better ETF than TAN despite its much lower market cap.KWT performance has also been better as TAN is give too much weighed to First Solar.Buying a Solar ETF at this point of time may be a good investment as valuations are quite low and sentiment quite negative.The Solar Industry is also much closer grid parity which means the industry will soon be free of government subsidies.