ETF Of The Week: Guggenheim Solar ETF (TAN)

May 11, 2018

This week, we're debuting a new regular feature: ETF Of The Week, a designation given to the most newsworthy or notable fund of the past seven days.

For our inaugural installment, we had plenty of ETFs to choose from: the iShares MSCI Malaysia ETF (EWM), in the news due to the surprising Malaysian election outcome; the United States Oil Fund LP (USO), carried higher on news that President Trump would exit the Iran nuclear deal; or the iShares iBoxx USD High Yield Corporate Bond ETF (HYG), which our very own Dave Nadig made the central protagonist of his blistering "The Next Bond Crash: An ETF Story."

But one ETF in the news this week really caught our attention, given that it's at the epicenter of an under-the-radar economic revolution: the Guggenheim Solar ETF (TAN).

 

Source: StockCharts. Data as of May 10, 2018.

 

Solar: World's Fastest-Growing Power Source

This week, it was announced California would require solar panels on all new home construction in the state starting in 2020. (Some municipalities, like San Francisco and South Miami, Florida, already have such requirements in place.)

This will drive up home prices and cut into homebuilders' bottom lines, to be sure. But it's also a welcome boost for the solar industry, which has faced several head winds so far in the Trump era, from international trade wars that have levied 30% tariffs on Chinese-made solar components to the president pulling the country out of the Paris Climate Agreement.

It's no secret the Trump administration loves fossil fuels. But it's too late to turn back the clock on solar, as the sector is booming, both at home and abroad. Solar is already the fastest-growing power source in the world—probably because, in many instances, it's also cheaper than fossil fuels.

It's also a significant economic driver: More Americans are employed by the solar industry than the oil, gas and coal industries combined. That's nothing compared to China, however, which has nine times as many solar power jobs; you can even see their solar buildout from space.

With the fifth-largest economy in the world throwing its weight behind solar, it's clear that bright times (sorry) lie ahead for the space. And that's going to mean good things for the solar industry ETF.

TAN Outshines SPY

TAN is the only pure-play solar ETF remaining; a rival fund from VanEck closed its doors last year. The fund is a narrow, concentrated play of 23 names, each ranked by their revenues from solar-related business. The portfolio skews toward U.S. firms, and given the growth nature of the industry, small-caps.

With $381 million in assets under management, TAN has strong daily trading volume ($2.81 million) and relatively tight spreads (0.13%). Yet with a 0.70 expense ratio, the fund doesn't come cheap. Historically, however, the fund's vigorous securities lending activity has helped it offset that charge many times over. (Read more at "Is Securities Lending Good For Investors?")

Though TAN is down 0.52% year-to-date, it's up a whopping 41.2% over a one-year period. That's almost triple the 12-month return of the SPDR S&P 500 ETF Trust (SPY).

On the news of the California mandate, TAN spiked 4%.  

Contact Lara Crigger at [email protected]

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