Time To Get Back Into Solar?
Solar stocks endured a brutal bear market from October 2010 through July 2012. During that time, many solar stocks lost more than 90% of their value.
It was a terrifying period of wealth destruction for solar investors to say the least.
But it looks like the bear market has finally run its course. Solar stocks have been moving steadily higher since early August 2012.
Many are showing strong triple-digit gains off their 52-week lows. And a couple, like JinkoSolar (JKS) and MEMC Electronic Materials (WFR), have even skyrocketed into the stratosphere.
These two stocks are up 301% and 212% respectively as I write.
The recent outperformance begs the question… is it time to get back into solar stocks?
Based on a recent report from an analyst at Deutsche Bank, it certainly looks like it.
Analyst Vishal Shah predicts the global solar market will expand by 22% this year. She sees strong growth in China, the US, and India more than offsetting declines in Germany and Italy.
According to the report, China will more than double their solar capacity, India’s will more than triple, and the US will increase theirs by 29% in 2013.
So with the solar industry apparently poised for a new growth cycle, the question becomes… what’s the best way to profit from it?
There are two ETFs that focus solely on the solar industry.
One is the Market Vectors Solar Energy ETF (KWT). The other is Guggenheim Solar (TAN).
Of the two, I prefer TAN.
TAN has assets under management of $65.1 million compared to just $12.7 million for KWT. And TAN’s average daily volume of 74,524 shares is more than 12x larger than KWT’s 5,792 shares.
From a portfolio perspective, both ETFs are very similar. That’s probably due to there being a limited number of solar stocks to choose from.
KWT holds more stocks with 26 to TAN’s 23, but both have around 60% of their assets invested in their top ten holdings. These holdings are nearly identical with names such as First Solar (FSLR), MEMC Electronic Materials (WFR), Power-One (PWER), Trina Solar (TSL), and GT Advanced Technologies (GTAT) in common.
As far as fees go, there is no difference at all. Both TAN and KWT charge 65 basis points apiece for their services.
Given the similarities in portfolios and fees, it should come as no surprise that the two ETFs are performing about the same. KWT is up 17.25% this year, while TAN has a gain of 16.56%.
One stark difference between the two funds is found in their dividend yields. KWT is currently yielding just 3.10%, while KWT’s is much higher at 7.72%.
The bottom line…
TAN has a larger, more liquid portfolio and pays a higher dividend than KWT. As such, I recommend TAN over KWT for a play on a rebound in the solar industry.
Profitably Yours,
Robert Morris
Category: ETFs, Foreign Market ETFs, Sector ETFs
