Although solar energy is not a traditional commodity, its presence in the financial world has grown over the years. Solar energy is simply the process of capturing energy emitted by the sun and converting it to a usable form of electricity or other power. Historically, this alternative source of energy has not accounted for any significant portion of the global energy market. Some experts, however, believe that there lies significant potential for the future of solar energy, which could have serious impacts on numerous commodities [for more solar energy news and analysis subscribe to our free newsletter].
Currently the only way to gain access to solar energy is through the equities market. And thanks to the development of the exchange-traded fund industry, investors now have several ways to gain access to this alternative energy source. Below, we outline the two most popular solar energy ETFs and which one will fit your investment objectives.
Solar ETF (TAN)
- Total Assets: $44.3 million
- Average Daily Volume: 56,000
- Expense Ratio: 0.65%
- In Depth: TAN Analyst Report and ETFdb Realtime Rating
Guggenheim’s Solar ETF is by far the largest and most popular option for investors looking to gain access to this intriguing alternative energy segment. Since inception in 2008, the fund has accumulated over $44 million in total assets, and currently holds an ADV of just under 56,000. TAN tracks an underlying index that is designed to measure the performance of companies in multiple sub-sectors of the solar energy industry. In terms of country allocation, the majority of the fund’s assets are in Chinese equities, followed by significant weightings in the U.S., Germany, and Switzerland. TAN also has a nice tilt towards small and micro cap firms, which may be more volatile than their large-cap counterparts but often times offer greater growth opportunities.
TAN is Right for You if: You are an active trader seeking to either speculate on solar energy’s movements or quickly execute positions in the commodity.
Market Vectors Solar Energy ETF (KWT)
Quick Stats (10/11/2012)
- Total Assets: $10.4 million
- Average Daily Volume: 1,700
- Expense Ratio: 0.65%
- In Depth: KWT Analyst Report and ETFdb Realtime Rating
KWT is the only other solar energy ETF option available on the market, but its popularity among investors has been seemingly lacking. The fund has only $10 million in total assets and holds a relatively low trading volume of just 1,700 shares a day on average. Although there is a significant discrepancy between the size and liquidity of KWT and its competitor TAN, both funds have strikingly similar portfolios with many of overlaps in individual holdings. KWT does however have a larger allocation towards small and micro cap firms, giving investors potentially higher growth opportunities. Additionally, the fund has greater exposure to U.S. equities, which may be more appealing for some investors. In recent years, KWT has struggled to remain in positive territory and in response, the fund underwent a reverse 1-for-15 stock split in June of 2012 to try to stop its plummeting share price [see also Why Alternative Energy Will Never Become Widespread (In Our Lifetime)].
KWT is Right for You if: You are an investor looking to achieve exposure to the solar energy market, but want to maintain a greater allocation to U.S. equities.
Disclosure: No positions at time of writing.