Nanalyze

Solar ETFs: Guggenheim’s TAN or Market Vectors’ KWT?

Solar stocks went on a tear in 2013 with the Guggenheim Solar ETF (NYSEARCA:TAN) and the Market Vectors Solar ETF (NYSEARCA:KWT) taking the spots for 1st and 4th best performing ETFs of 2013 with returns of +122% and +98% respectively. Investors who don’t want to stomach the volatility of solar stocks or try and cherry pick the potential winners should take a look at investing in one or both of these two pure-pay solar ETFs.

The below table shows the returns of the top-10 holdings for TAN and KWT across various time frames and compares them to the returns of these two ETFs (source Google Finance):

1MO 3MO 6MO 1YR 5YR
Sunedison NYSE:SUNE 32% 44% 149% 265% 22%
GT Advanced Tech NASDAQ:GTAT 40% 46% 121% 354% 235%
GCL-Poly Energy HKG:3800 11% 15% 42% 45% 430%
First Solar NASDAQ:FSLR 13% -5% 55% 69% -46%
SolarCity NASDAQ:SCTY 15% 63% 171% N/A N/A
Meyer Burger SWX:MBTN 21% 60% 76% 97% N/A
Sunpower NASDAQ:SPWR 2% 9% 54% 165% 19%
Canadian Solar NASDAQ:CSIQ 7% 44% 234% 826% 1065%
Rec Silicon Asa STO:RECO 104% 84% 58% 398% -92%
Hanergy HKG:0566 -2% -11% 46% 137% 6%
SMA Solar ETR:S92 40% 47% 78% 92% 40%
Rec Solar Asa RCLRF US:OTC 49% 50% N/A N/A N/A
Guggenheim TAN NYSEARCA:TAN 19% 21% 72% 141% -13%
Market Vector KWT NYSEARCA:KWT 14% 19% 70% 99% -28%

 

TAN manages to exceed the returns of KWT in all of the above time frames. Interestingly enough, TAN also beats the much-discussed US solar company, First Solar, for every time frame listed above. With TAN winning in performance, it merits digging into these two ETFs to try and figure out why they differ so much. First, let’s compare the two ETFs using some basic attributes:

Tan_VS_KWT__Basics

KWT wins the diversification test with more holdings than TAN but TAN has far more assets and much greater liquidity.  Gross expenses are the total cost of the firm to manage the ETF and investors should mainly be concerned with the “net expense ratio” which is the fees charged to the investor by the firm managing the ETF. In this case, both are roughly the same. We can also see TAN overweights China significantly in its holdings. In order to understand just how the holdings of these two ETFs differ, let’s look at the top-10 constituents for each ETF and their respective weightings:

Tan_VS_KWT__Holdings

There are not that many significant differences in the top-10 holdings of these two ETFs. TAN underweights Sunedison (NYSE:SUNE) which is KWT’s largest holding and then overweights the high flying 2013 IPO, Solarcity (NASDAQ:SCTY), which represents TAN’s biggest holding. TAN also overweights Renewable Energy Corp which was split into two companies in 2013; Rec Solar and Rec Silicon. Given that not one Chinese company can be found in the top-10 holdings of TAN, one can presume TAN is overweight Chinese solar with quite a few smaller positions. With China becoming the world’s biggest solar market in 2013, this may help explain the better past performance for TAN. While it may not be that obvious where TAN’s excess returns are coming from, what does seem obvious is that just on the basis of historical performance and liquidity, TAN seems to be the best choice for solar investors when considering both of these ETFs.

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  • Allison

    Guys: it’s hard to take an article seriously when you don’t proofread THE TITLE. The second solar ETF’s ticker – as you get right in the article – is $kwT NOT $kwH. Please correct this for the sake of your readers, and may I respectfully suggest always having someone else do a proof before posting? Thanks

    • Nanalyze

      Thank you for taking the time to point this out Allison. We couldn’t agree with you more. It’s fixed.

      That article was written about three years ago when we were just starting out – poor and understaffed. Fast forward to today and we’re still poor but we have hired a proof reader and he’s trying his best to make sure we never commit such embarrassing mistakes like this again. 🙂

      Thank you again for that!

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