Solar ETFs To Shine In 2016?

Includes: KWT, TAN
by: Zacks Funds

The entire alternative energy space including solar has been in a tight spot in the last one year. Though not directly related, the ongoing energy market rout had a ripple effect on this segment. The common misunderstanding was that consumers dumped solar power and opted for fossil fuels in the wake of an acute plunge in oil prices.

However, things may improve for solar stocks and the related ETFs. At least a few analysts believe so. As per the bullish cohort, the solar industry will no longer bear the bad luck of the oil industry and that the space will move on its own supply-and-demand dynamics, going forward.

Higher panel installations, improved technologies, issues regarding global warming and Obama's 'Climate Action Plan' all point to the fact that the solar boom will soon return and will be here to stay.

As per, solar power is turning cheaper and its global reach is widening. As per a report from White House, the average cost of a solar electric system has declined by 50% since the start of 2010. Also, since President Obama took office, solar power has seen twenty-fold growth. Also, the sector may now march ahead thanks to the 'great decoupling' between it and conventional energy sources.

Plus, the Paris Climate deal should also propel higher usage of alternative energy sources including solar power. Per the treaty, the rich countries like the U.S. and those in Europe assure $100 billion per year to relatively underprivileged nations to help them to curb emissions of greenhouse gasses by 2020. This is expected to put an end to the fossil fuel era.

China, the second largest economy of the world, is also feeding hopes about the sector's recovery. Though economically struggling, China is leaving no stone unturned to curb pollution. The nation is aiming a minimum of 15 gigawatts of extra photovoltaic capacity in 2016. Though the measure is slightly lower than the 17.8 gigawatts of target fixed for 2015, the numbers are strong enough to fuel the solar power sector.

Meanwhile, the U.S. government approved a five-year extension to the Investment Tax Credit (ITC) and Production Tax Credit (PTC) for solar and wind companies.

All these hint at the potential turnaround in the solar power sector. Below, we highlight two solar ETFs which could be game changers in the coming days.

Guggenheim Solar ETF (NYSEARCA:TAN)

This ETF targets the solar corner of the broad clean energy space by tracking the MAC Global Solar Energy Index. Holding 31 stocks in the basket, the fund is concentrated on the top two firms - First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR) - with 7.62% and 5.80% share, respectively. Other firms hold no more than 5.45% of assets. American firms dominate the fund's portfolio with nearly 50.9% share, followed by Hong Kong (19.84%) and China (17.5%). The product has amassed $246.6 million in its asset base and trades in solid volume of around 221,000 shares a day. It charges investors 70 bps in fees per year. The fund has lost 19.8% so far this year (as of February 4, 2016).

Market Vectors Solar Energy ETF (NYSEARCA:KWT)

This fund manages $15.4 million in its asset base and provides global exposure to 29 solar stocks by tracking the Market Vectors Global Solar Energy Index. In terms of country exposure, U.S. and China account for the top two countries with 35.44% and 25.64% allocation, respectively, closely followed by Taiwan (16.69%). The product has an expense ratio of 0.65% and sees paltry volume of about 2,000 shares a day. The ETF is off 17.3% so far this year.

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