Solar-energy exchange-traded funds (ETFs) were the zombies of the light, having lost almost all of their value over the past five years. Now, with two of the most influential forces in investing helping change sentiment about the industry -- Warren Buffett and China -- their fortunes look very different.
Last January Buffett invested $2.5 billion in Solar Power, a California solar parts and assembly maker and installer. China’s aggressive subsidies of solar energy production are forecast to make it the world’s biggest solar market this year. Its subsidies have already helped cut the cost of solar panels in half since 2010.
Only two ETFs are wholly dedicated to solar energy: Guggenheim Solar ETF (TAN) and the Market Vectors Solar Energy ETF (KWT). Both were launched within a week of each other in April 2008. Both have the same top five holdings. Both have a similar geographic focus, with exposure to the U.S., China, Hong Kong and Germany. Until recently, both had lost about 91 percent of their value since inception. Both underwent reverse splits earlier this year. Both are beating the S&P 500 for the year to date. Both have a beauty spot on their left cheek (or would if they were human).
How do you choose between two ETFs that are so similar? Here’s a checklist:
• Country exposure: TAN has 53 percent of assets in the U.S. and 17 percent in China; KWT has 41 percent in the U.S., 6 percent in China and 22 percent in Taiwan.
• Liquidity: TAN trades 204,000 shares per day; KWT trades 5,000 shares per day.
• Performance: TAN is up 41.9 percent for the year to date; KWT is up 28.3 percent.
• Expense ratio: TAN’s expense ratio is .70 percent; KWT’s is .65 percent.
• Bid-ask spread: TAN’s bid-ask spread is .04; KWT’s is .20.
The winner: Guggenheim's TAN. There's more trading in TAN, so investors might get better prices when buying and selling the ETF. Also, TAN is getting more juice out of its heavier U.S. weighting, so has more relative performance strength. That heavier U.S. weighting is contributing 7 percent more in return to TAN than to KWT. One big reason for this is TAN's 5.2 percent holding in Solar City Corp. The company, which had an initial public offering in December, which had risen 163.5 percent year to date. KWT does not hold this company.
The long-term outlook on solar and other renewable power sources is bright. Bloomberg New Energy Finance estimates that clean energy investments worldwide will rise to $630 billion by 2030. While no one has gotten rich investing in the solar-energy ETFs up to this point, there is hope that it could be time for this sector to live up to its potential.
Eric Balchunas is an exchange-traded fund (ETF) analyst for Bloomberg. More ETF data is available here.