In just one day, enough sunlight strikes the earth’s surface to power the entire planet’s energy needs for about 27 years. However, less than 0.1% of the world’s energy needs are being met via solar power. With traditional energy sources like oil and natural gas becoming strained under our current and future use, governments and institutions have been looking towards alternatives to meet energy requirements. Solar energy is quickly filling that niche, currently growing by 50% per year – making the photovoltaic cell one of the quickest expanding forms of renewable energy. Smart long-term investors, who can stomach the risks involved with an emerging industry, are taking notice…..
…..Exchange-Traded Funds To The Rescue
With companies such as silicon wafer manufacturer MEMC Electronic Materials (NYSE:WFR) and module producer Canadian Solar (Nasdaq:CSIQ), the sun-power segment of the alternative market is quite diverse. Add this to the rapidly changing nature of the growing industry and you can see how assembling a portfolio of solar stocks can be a daunting task. Most retail investors wanting to participate in this space would be better suited in one of the few exchange-traded products in this area. ETFs allow instant diversification, intra-daily trading and other benefits. There are currently two ETFs on the market specifically dealing with the solar industry – the Market Vectors Solar Energy ETF (NYSE:KWT) from Van Eck Global and the Claymore/MAC Global Solar Energy (NYSE:TAN) from Claymore Securities. Both follow a similar index of global solar companies. However, clever ticker symbol aside, the Claymore fund is my preferred choice in this area due its 10.5 times trading volume versus the Van Eck ETF. In addition, it has hefty assets under management. (To learn more about ETFs, read our Exchange-Traded Funds Special Feature.)
Getting A TAN
The Claymore Solar ETF offers investors a truly global representation of the solar industry, with the United States making up only 23% of the index. The fund, however, is concentrated, with only 26 total holdings, so volatility will occur. The ETF includes positions in low cost leader First Solar (Nasdaq:FSLR) in addition to several corporations not listed on U.S. exchanges, such as Germany’s SolarWorld AG and Spain’s Solaria Energia. The fund also includes several of the recent U.S.- listed Chinese solar companies such as China Sunergy (Nasdaq:CSUN) and ReneSola (NYSE:SOL). The fund overall has performed poorly, down nearly 73% since its inception. It should be noted, however, that the fund did start trading in April of 2008, right when the current economic downturn kicked into high gear. In addition, the fund has bounced well off of its 52-week low of $4.65. Given the long-term nature of the industry, it should continue to grow for an extended time. The Claymore ETF charges a modest 0.65% in expenses and pays an annual dividend.