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):
|GT Advanced Tech||NASDAQ:GTAT||40%||46%||121%||354%||235%|
|Rec Silicon Asa||STO:RECO||104%||84%||58%||398%||-92%|
|Rec Solar Asa||RCLRF US:OTC||49%||50%||N/A||N/A||N/A|
|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:
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:
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.
Want to invest in renewable energy? Then why not hold the biggest renewable energy company in the world, which also happens to be a dividend champion. Become a Nanalyze Premium annual member and see all of the stocks we're holding.