The global solar industry seems to be rebounding from its hard
hit 2012 performance with the resolution of the U.S. fiscal cliff
and the uptick in the price of polysilicon - the key raw material
in photovoltaic solar panels. Consolidation and specialization
are the two keys elements for the development of the
With that being said, solar
could perform better this year, providing investors with solid
gains to extend their rally once more. The
Guggenheim Solar ETF
was up 13.5% while the other ETF tracking the space, the
Market Vectors Solar Energy ETF
, performed slightly worse (but still very respectable), adding
Though these gains are not enough to make up for the past
losses, it is performing better in the energy space like the
other alternatives ETFs (read:
Solar ETF Rally Continues
). While these two funds focus on small cap companies and charge
65 bps in annual fees from investors, they are still different
from each other.
TAN tracks the MAC Global Solar Energy Index which offers
exposure to companies in some aspects of the solar power
These include companies that produce products for end-users,
manufactures of solar panels, and even firms that are engaged in
solar power system sales, distribution, installation, integration
or financing; and companies that specialize in selling
electricity derived from solar power.
The index also includes companies that are not exclusively
focused on solar power although it gives these firms a lower
weighting than their pure-play peers.
The product holds 27 securities in the basket with heavy
weightings dedicated to
GCL-Poly Energy Holdings
First Solar (
Memc Electric Materials (
. From a country perspective, the U.S. makes up about two-fifths
of total assets while China and Germany comprise 29.7% and 11.6%,
respectively, and give a decent exposure.
Meanwhile, the Market Vectors product tracks the Ardour Solar
Energy Index. The benchmark is a rules-based, modified
global-capitalization-weighted, float-adjusted index intended to
give investors a means of tracking the overall performance of a
global universe of listed companies engaged in the solar energy
The Index provides exposure to publicly traded companies from
around the world that derive at least 66% of their revenues from
solar energy. On a weighted basis, the index constituents derive
in excess of 90% of their revenues from solar energy.
The basket includes 263 securities with top weightings going
towards GCL-Poly Energy, WFR and FSLR. American securities
dominate the portfolio with 35% going to the U.S. while China
accounts for 26% of the assets. Taiwan and UK also make up a nice
mix with 14% share each in the basket (see more ETFs in the
Bright Future Ahead
The solar industry is evolving rapidly with China leading the
Finally Some Good News for Solar ETFs?
). Previously, Chinese solar companies had unlimited
opportunities for financing which helped them to ramp up supply
and trim marginal costs to an extremely low level.
This led to accusations of dumping, whereby Chinese companies
sell their products at a loss in order to push the less
subsidized American firms out of business.
With the decline in the cost of developing solar technologies,
this situation seems to be changing as the Chinese government is
taking several initiatives to boost growth in the space. The
country is currently focusing on untapped domestic markets, which
have become one of the world's biggest areas for solar energy
China would be pumping more into the solar space. The nation
would be adding another $1.1 billion in subsidies to the space,
doubling the government's investment in the sector. Further,
solar companies are now able to obtain cheap long-term financing
of up to 100%, without any guarantees, from Beijing.
These efforts would definitely reflate the important Chinese
export-focused solar market that has been hit by excess capacity
and waning foreign demand (read
: Is the China ETF Ready to Soar?
Beyond this, the Middle East solar industry is also a boon to
the global solar power growth as the region intends to boost
solar power projects worth about $6.8 billion which are currently
underway in the UAE, Kuwait, Oman, Egypt, Jordan and Morocco.
Solar ETFs have still been terrible performers over the long
term, even when taking into account the recent strength. Though
the broad solar sector remains risky, the space could be a bigger
player in the years to come. Investors seeking exposure to the
solar power space could tap the current opportunities as the
recent rally could (hopefully) be an end point to the bearish
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FIRST SOLAR INC (FSLR): Free Stock Analysis
MKT VEC SOLAR (KWT): ETF Research Reports
GUGG-SOLAR (TAN): ETF Research Reports
MEMC ELEC MATRL (WFR): Free Stock Analysis
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