Solar Energy ETFs Quietly Soaring

March 06, 2015

Solar energy ETFs are staging an impressive rally following a slew of renewable energy installation deals that suggest demand for solar panels and alternative energy is picking up pace, at least in Silicon Valley.

 

Much of the upward momentum is recent, following news that Apple is investing big in solar energy. The company said last month an $850 million deal with photovoltaic panel maker First Solar would equip all of the company’s California facilities—including stores and its Sunnyvale headquarters—with solar power, according to Bloomberg.

 

That same month, another Silicon Valley giant, Google, made a similar move, announcing a $300 million investment in SolarCity power plants. Bloomberg reported that the latest investment puts Google’s total commitment to renewable energy projects at about $1.8 billion so far.

 

The Guggenheim Solar ETF (TAN | B-38) has now gained nearly 31 percent year-to-date, with much of those gains coming in the past month, while the Market Vectors Solar Energy ETF (KWT | D-31) has risen 23 percent in the same period. 

 

 

Again, these companies investing in solar capability aren’t utility companies, yet they are fueling demand for renewable energy among corporations at an impressive rate. First Solar and SolarCity are some of the main companies in this segment in the U.S., and are both prominent holdings in TAN and KWT.

 

TAN tracks an index of solar energy companies that are selected based on the relative importance of solar power to the company's business model. The fund adjusts each company's weight in an attempt to boost exposure to "pure-play" companies and underweight "nonpure-play" companies, based on revenues from solar-related activity, according to ETF.com Analytics.

 

That approach has resonated with investors, and today, TAN has about $372 million in assets gathered in about seven years since it came to market. First Solar and SolarCity are among the fund’s five biggest holdings, representing roughly 7.6 percent and 6.7 percent of the overall portfolio, respectively.

 

KWT, meanwhile, remains a relatively small fund, with $23 million in assets gathered since its inception in 2008. By design, the global-in-scope portfolio tracks a market-cap-weighted index of companies that earn at least 50 percent of their revenues from the solar energy industry. It owns some 34 names, with First Solar and Solar City among the top holdings. The fund allocates about 7 percent to SolarCity and 6.8 percent to First Solar.

 

Losses To Erase

While the latest round of deals has been a shot in the arm in funds like TAN and KWT, it’s worth noting that the past 12 months have not been easy on investors who own these funds.

 

TAN is still down 6.5 percent year-on-year, while KWT’s one-year losses are clocking in at 10.6 percent. 

 

Charts courtesy of StockCharts.com

 

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