The Market Vectors Solar Energy ETF (NYSEArca:KWT) was the
worst-performing ETF in the first half of 2012, losing nearly 30
percent of its value, in large measure because oil prices softened
so much earlier this year.
That year-to-date red ink was nearly as bad as on another
solar-energy fund, the Guggenheim Solar ETF (NYSEArca:TAN), which
gave up a bit more than a quarter of its value in the first half.
What's worse, the two ETFs were among the worst-performing ETFs of
2011, begging the question, When will the bleeding end?
Renewable energy investments rise and fall with oil, and the
drop in oil prices amid slowing global growth and diminished
expectations of demand for everything from energy to goods and
services has hit solar ETFs hard. NYMEX crude oil futures have
dropped about 12 percent year-to-date to $87.22/barrel as of
Thursday's close. That drop was as much as 20 percent earlier in
In any case, investors who have held KWT in the past year have
seen the value of their investment shrink by as much as 77 percent,
while TAN's price has fallen by two-thirds in the past 12
Both funds made it onto a list compiled by our own Matt Hougan
earlier this year, in a piece titled "The Five Worst Investments
Ever." Rubberstamping Hougan's unvarnished view, both TAN and KWT
underwent reverse share splits this year as their sponsors sought
to pump up their prices.
The appeal of alternative energy sources like solar is also hurt
by other newly plentiful supplies of relatively clean-burning
energy such as natural gas. Natural gas has become abundant in
recent years due to new technologies such as hydraulic fracturing,
or "fracking," Brandon Rakszawski, product manager at Van Eck, told
IndexUniverse in a telephone interview.
Dwindling government 'subsidies and support' at a time of
economic uncertainty have also limited growth in the solar energy
segment, he said.
'KWT is in a difficult spot right now, but there is a lot of
merit to investing in solar and other alternative energy sources
long-term,' Rakszawski said. 'There's a desire for energy security,
to be as energy independent as possible, and that's positive for
Constituents Choking Too
A closer look at the performance of some of TAN's and KWT's
underlying holdings puts an even sharper focus on what the two ETFs
are up against.
KWT, for instance, allocates 11 percent of its portfolio to
First Solar Inc., an Arizona-based company that has seen its stock
drop 55 percent year-to-date and 88 percent in the past year. First
Solar is also a large component of TAN, representing nearly 8
percent of that portfolio.
TAN's top holding is a Hong Kong-listed security, GCL-Poly
Energy Holdings, and that company's stock has dropped more than 22
percent since the end of last year.
Another company in the segment such as GT Advanced
Technologies-KWT's second-largest holding-has given up 28 percent
of its share value this year and is now nearly 70 percent cheaper
than it was a year ago.
The tale is the same for just about every security in the two
Gold Miners Lack Luster
Equities-based gold miner funds were also found among the
worst-performing ETFs in the first half of the year.
The Global X Gold Explorers ETF (NYSEArca:GLDX) dropped 29.1
percent, while the Market Vectors Junior Gold Miners ETF
(NYSEArca:GDXJ) dropped 22.2 percent.
The funds were caught up in the risk aversion in the past six
months as the eurozone's debt problems weighed on markets, and by a
bull market in gold that seems to be taking a breather-instead of
bullion, investors have gravitated toward the relative safety of
fixed-income assets as they pared equities holdings.
But few have declared gold's 12-year run finished, and inflows
of $722 million into GDXJ in the first half suggest that investors
are buying the ETF on the dip in preparation for a resumption of
gold's bullish run.
GDXJ, which offers exposure to some of the smaller gold mining
companies in the space, had total assets of $2.22 billion as of
July 5, according to data compiled by IndexUniverse.
Bottom 10 Performers YTD (Excluding Leveraged and Inverse
as well as 2012 launches)
||YTD Flows ($,M)
||Market Vectors Solar Energy
||Global X Gold Explorers
||iPath Dow Jones-UBS Coffee Total Return ETN
||iPath Pure Beta Coffee ETN
||Global X FTSE Argentina 20
||United States Natural Gas
||iPath Pure Beta Cotton ETN
||Market Vectors Coal
||Market Vectors Junior Gold Miners
Top 10 Performers YTD (Excluding Leveraged and Inverse as
well as 2012 launches)
||YTD Flows ($,M)
||iShares Dow Jones U.S. Home Construction
||First Trust NYSE Arca Biotechnology
||SPDR S&P Biotech
||Market Vectors Egypt
||iShares MSCI Turkey Investable Market
||Market Vectors Biotech
||iShares MSCI Philippines Investable Market
||Market Vectors Vietnam
||SPDR S&P Homebuilders
||iShares NASDAQ Biotechnology
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