As demand for alternative energy has soared in recent years so too has investor interest. Solar energy, while one of the youngest energy sources on the market, has quickly become a popular holding for investors of all kinds. The underlying thesis is appealing; solar has grown an average of 39% in each of the last ten years and is by far the fastest-growing energy source in the world. Despite its 73% expansion in 2010, solar is still relatively unexplored and accounts for a very small part of energy consumption across the world. But plans to expand the industry and new innovations make it one of the most enticing growth opportunities currently available [see also 25 Ways To Invest In Alternative Energy].
When it comes to solar investing, many have their own opinions as to where their money would be best off. Most fall under the umbrella of China’s massive prospects, as this emerging market is on pace to be the most dominant solar country over the next decade. Still, others feel that solar is simply too unsafe of an investment to risk their assets, and recently they would be right; most solar investments have lost anywhere between 50% to 70% in the trailing year. But for those who feel that the losses are only temporary, and solar has a bright future, there is one investment that stands out from the rest [see also The Ultimate Guide To Solar Power Investing].
This ETF is designed to track companies within the various sectors of the solar industry. Offered by Guggenheim, TAN features top holdings like First Solar, Trina Solar, and Yingli Green Energy. The fund charges 65 basis points and has quickly become one of the most popular ways to gain exposure to this green energy sector. So what makes TAN stand out from the rest? Its performance. Over the trailing year, TAN has outperformed nearly every other security in the solar space with losses amounting to just over 59%. While this figure seems like a crushing blow to any portfolio, investors would likely have been worse off had they tried to choose any individual firm [see also Company Spotlight: First Solar (FSLR)].
| Ticker | 1 Year Return* | |||||
|---|---|---|---|---|---|---|
| Solar ETF (TAN) | -59.36% | |||||
| First Solar (FSLR) | -63.49% | |||||
| Yingli Energy (YGE) | -66.59% | |||||
| Trina Solar (TSL) | -71.20% | |||||
| Jinko Solar (JKS) | -75.51% | |||||
| JA Solar (JASO) | -77.32% | |||||
| *As of 11/17/2011 | ||||||
As demonstrated above, the Solar ETF is outperforming its individual holdings as well as a number of big names in the industry. This should come as no surprise given the vast benefits that ETFs offer. Its diversified portfolio evenly spreads risk and can lead to better returns even when individual holdings falter. This may be an important lesson for commodity investors to learn, as many will have to swallow their pride and realize that the odds of them picking a single stock that will outperform this ETF is relatively low [see also Three Reasons Why Solar Stocks Are Sinking].
That being said, investing in solar is still risky business. The returns over the past year have been abysmal and have likely put a nice dent in a number of portfolios. Some investors feel that alternative energy is one of the few attractive growth options left, while others feel that solar has no momentum for the time being, and is something of a dog investment. No matter which side of the argument you fall on, TAN deserves a closer look when it comes time to add alternative energy to your basket of holdings [see also Three Things Wall Street Journal Didn’t Tell You About Commodities].
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Disclosure: No positions at time of writing.
