The Quick Investor Guide To Solar Energy ETFs (TAN, FSLR, GTAT, PWER, GEX, TSL, KWT, ICLN)
Jean Folger: In response to the global dependence on fossil fuels, there has been a growing demand for the development of alternative, renewable energy sources such as biofuel, biomass, geothermal, hydroelectric, solar and wind power. Solar energy technology harnesses the radiant light and heat from the sun and converts the sunlight into usable energy that is used in solar water hearing, passive solar design for space heating and cooling, and solar photovoltaics for electricity. The two primary approaches to generating energy from solar power are:
- Concentrated solar power (CSP): uses mirrors and specialized lenses to produce small beams of energy that supply electricity for large power stations.
- Solar photovoltaic (PV) technology: converts sunlight directly into electricity to power residential and commercial buildings.
Despite the fact that sunlight makes its way to Earth for free, solar energy has traditionally been an expensive technology. With decreasing materials costs and increasing efficiency, however, the price per watt of solar energy is expected to drop significantly in the coming years [for more solar power news and analysis subscribe to our free newsletter].
Solar energy is a global commodity whose price, like other commodities, is affected by a number of factors, including:
- Crude Oil/Natural Gas Prices: The price of crude oil and natural gas affects the price of solar energy. When oil and gas prices are high, renewable energy sources, including solar, look more appealing. When oil and gas prices are low, however, it can take attention and demand away from solar [see also The Best Way To Invest In Solar Energy].
- Government Subsidies: Even though solar energy is becoming more cost efficient, it is still expensive. The industry relies on varying levels of government subsidies and tax breaks. When the economy is strong, the industry may receive higher levels; conversely, during periods of economic struggle, subsidies and tax breaks may wane, increasing the overall costs.
- Industry Advancements: Industry advancements continue to develop smaller, more efficient and less expensive technologies. As the costs decrease, interest and use is likely to increase.
- Weather: In the northern hemisphere, solar panels face true south, and the reverse is true in the southern hemisphere. Often, the panels are tilted to take advantage of the sun’s height throughout the year. While we can fully take advantage of the sun by facing and tilting panels in the best direction, solar energy, by its nature, is dependent upon sunlight. Cloudy or rainy days, or stormy periods can limit output, or reduce supply [see also 25 Ways To Invest In Alternative Energy].
As solar energy becomes more efficient and less expensive to produce, it has become an increasingly popular investment. A variety of investment instruments are available that provide exposure to solar power-related companies such as those that manufacture the photovoltaic cells, and companies that provide the raw materials. Although it is impossible to invest directly in solar, solar ETFs offer exposure to the underlying solar industry.
Guggenheim Solar ETF (NYSEARCA:TAN)
Guggenheim Solar ETF tracks an equity index called the MAC Global Solar Energy Index. The index tracks companies that are involved in some aspect of the solar industry, including those that produce solar power equipment and end-user products and raw materials suppliers. The fund invests a minimum of 90% in common stock, American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs). Top holdings include First Solar (NASDAQ:FSLR), GT Advanced Technologies (NASDAQ:GTAT) and GCL-Poly Energy Holdings (03800: HK Stock Exchange). TAN has an inception date of April 15, 2008, a current expense cap of $0.65%, total net assets of $50.25 million, and a three-month average volume of 45,650.
Market Vectors Solar Energy ETF (NYSEARCA:KWT)
Market Vectors Solar Energy ETF tracks the price and yield performance of the Ardour Solar Entergy Index (SOLRXT). The index is a rules-based, global-capitalization-weighted, float-adjusted index that allows investors to track the overall performance of listed companies that are engaged in the solar energy industry. Major holdings include First Solar (NASDAQ:FSLR), Power-One (NASDAQ:PWER) and GT Advanced Technologies (NASDAQ:GTAT). Launched on April 21, 2008, KWT currently has an expense ratio of 0.65%, total net assets of $8.37 million, and a three-month average volume of 2,019.
Market Vectors Global Alternative Energy ETF (NYSEARCA:GEX)
The Market Vectors Global Alternative Energy ETF seeks to replicate the yield and performance of the Ardour Global Index (AGIXLT), a rules-based, global capitalization-weighted, float-adjusted index. The index provides a means to track the overall performance of listed companies engaged in the alternative energy industry. Solar-related holdings include First Solar (NASDAQ:FSLR), GT Advanced Technologies (NASDAQ:GTAT) and Trina Solar (NYSE:TSL). Launched on May 3, 2007, GEX has an expense ratio of 0.62%, total net assets of $42.77 million, and a three-month average volume of 12, 333.
iShares S&P Global Clean Energy Index Fund (NASDAQ:ICLN)
The iShares S&P Global Clean Energy Index Fund seeks investment results that follow the price and yield performance of the S&P Global Clean Energy Index. With 32 holdings, it allocates its holdings to alternative energy, including solar, and to companies involved in biomass, ethanol and geothermal production. Top holdings include China Everbright International Limited (257: HK Stock Exchange) and First Solar (NASDAQ:FSLR). Launched on June 24, 2008, ICLN has an expense ratio of 0.48%, net assets of $24.17 million, and a three-month average volume of 9,167.
Turn On the Lights
Investors have a growing number of opportunities for investing in alternative and renewable sources, including solar. Solar ETFs provide exposure to the underlying solar energy industry, and several broad-based clean energy funds are available as well that provide exposure to solar and other renewable energies.
Written By Jean Folger From CommodityHQ Disclosure: No Positions.
CommodityHQ offers educational content, analysis, and commentary on global commodity markets. Whether you’re looking to speculate on a short-term jump in crude or establish a long-term allocation to natural resources, CommodityHQ has the information you need.