Tag Archives: energy

Solar Energy ETFs – Decent Way To Stay Invested In The Volatile Solar Industry

Summary The top holdings in the portfolio are good companies with decent performances. The ETFs have considerably reduced their Chinese market exposure to tide the current downturn. The solar industry is set to grow at a rapid pace. I was sceptical about investing in solar ETFs earlier, mainly because of the fact that they included Hanergy Thin Film Power Group Ltd. (OTC: HNGSF ) among their top holdings. Since the Hanergy bubble has burst, the two ETFs have now minimized their exposure in that stock. The Guggenheim Solar ETF (NYSEARCA: TAN ) and the Market Vector ETF (NYSEARCA: KWT ) have also considerably reduced their exposure to Chinese stocks to avoid volatility. I think it should be a good opportunity to invest in these ETFs now, as they have increased their exposure to top quality solar stocks. The solar industry being a relatively new industry sees rapid changes in business models and technology – top companies (e.g. Hanwha Q Cells (NASDAQ: HQCL ) ) can go bankrupt in a matter of months due to changes in the supply chain/technology. Solar ETFs are a better way for retail investors to stay invested in the volatile solar industry to avoid company specific risks. They can also take advantage of the long term double digit secular growth of the industry using these ETFs. Top Holdings Then & Now – Portfolio looks decent now TAN Top Holdings As on 24th Apr-2015 29th Sep-2015 Hanergy Thin Film Power Group 11.45% – SunEdison Inc. (NYSE: SUNE ) 8.43% 5.15% First Solar Inc. (NASDAQ: FSLR ) 6.99% 8.06% GCL-Poly Energy Holdings LTD (OTCPK: GCPEF ) 6.45% 7.52% SolarCity Corp. (NASDAQ: SCTY ) 6.27% 7.01% SunPower Corp. (NASDAQ: SPWR ) 4.56% 5.01% Terraform Power Inc – A (NASDAQ: TERP ) 4.39% 4.27% Canadian Solar Inc. (NASDAQ: CSIQ ) 4.35% 4.22% Xinyi Solar Holdings LTD. 4.17% 5.88% Trina Solar LTD. (NYSE: TSL ) 3.93% 4.86% SMA Solar Technology (OTCPK: SMTGF ) – 4.19% Source: Guggenheim Solar ETF KWT Top Holdings As on 24th Apr-2015 31st Aug-2015 Hanergy Thin Film Power Group 8.16% – SunEdison Inc. 8.03% 4.06% First Solar Inc. 6.85% 8.90% SolarCity Corp. 6.46% 8.84% GCL-Poly Energy Holdings LTD 6.13% 5.66% Terraform Power Inc. – A 5.62% 6.91 Shunfeng International Clean Energy Ltd (OTCPK: SHUNF ) 5.32% – Trina Solar LTD. 4.71% 4.53% SunPower Corp. 4.65% 4.97% Canadian Solar Inc. 4.56% 3.72% Sino-American Silicon Products Inc. 4.11% – Xinyi Solar Holdings LTD. 3.10% 5.35% SMA Solar Technology – 4.85% Source: Van Eck Global Both the ETFs have removed Hanergy Thin Film from their respective portfolios. This is in line with my thoughts expressed earlier, that when the Hanergy bubble bursts – the ETFs will also suffer. Reducing exposure in the Chinese market makes sense now The ETFs had a considerable exposure in the Chinese market which made them vulnerable to low returns at the time of crisis. However, both the ETFs have reduced a considerable amount of their exposure in the Chinese market. KWT’s exposure in the Chinese market stands at 31% from 38% previously. For TAN the Chinese presence has been reduced from 48% previously to ~38% currently. All this shows that the ETFs are trying to reduce the volatility in their returns. Though the performance was slightly below the broader Dow Jones index, it was better than most of the individual stock returns. (click to enlarge) As on 12 th Oct 2015 Source: Google Finance YTD Performance of some of the stocks as on 12th Oct 2015 SPWR -2.9% SCTY -9.2% SUNE -52% TERP -34% CSIQ -10.7% Performance was better than individual Stock returns Investors look to invest in ETFs to guard themselves from the volatility in the sector. The solar industry is volatile and is facing a downturn currently. Other than Trina Solar and First Solar stock who returned ~22% and 15% YTD (as on 12th October 2015), other stocks have been battered. Both these ETFs have also suffered due to the recent selloff seen in the broader energy market. ETFs average the returns from all the stocks for investors. The investor will not unduly suffer if his one solar stock holding is punished. The Guggenheim Solar ETF has a total asset base of $225 million with an expense ratio of 0.7% and Market Vector ETF has a total asset base of $15 million with an expense ratio of 0.65%. Solar Energy has have a very bright future Though the Chinese stock market looks weak at the current time, the Chinese solar industry has a bright solar future. It is expected that China will be the largest solar market globally. The country is expecting to install 18 GW of new capacity this year. China and other major carbon emitters such as India and Europe have to considerably reduce its carbon emissions as part of the INDC. Solar energy is expected to be the biggest source of capacity expansion among all energy sources in the next 20 years, as per major forecaster (Bloomberg and others). Global solar installation are expected to increase by 40% y/y to 55 GW and continue to increase in the double digit range in the long term as well. USA solar energy is booming as well, with 22.7 GW of total installed capacity by the end of Q2’15. Downside Risks Staying invested in the solar industry through an ETF makes more sense if the investor is not very well acquainted with the market trends. However for someone who follows the industry closely, I think a better way to stay invested should be through individual stock holdings. If an investor believes in any particular stock(s) and stays invested, he should end up making more money than the ETF. For example, Trina Solar stock was up ~22% during the time the ETFs were seeing their values decline. Conclusion Solar ETFs have also been hurt by the decline in the energy sector, even though the industry is seeing strong growth and well run companies are showing good profitability and revenue growth. Solar ETFs were a bad bet earlier because of the heavy weighting being given to highly risky companies. But they have become a better investment, with the pruning of such stocks from their portfolios. The solar industry is an extremely dynamic and volatile one. It carries both high risks and rewards and for normal investors ETFs may be a good choice to take advantage of the long term secular growth of the industry. They represent a good investment now, as they have fallen unduly due to the oil price decline. Currently, both TAN and KWT represent good investment options in my view.

Utilities Specialist Reaves Launches Its 1st Actively Managed Utilities ETF

Summary Reaves Asset Management – a company with 50 years researching and investing in utility assets – recently launched the Reaves Utilities ETF. It joins the relatively small list of actively managed ETFs but carries an expense ratio that would place it among the most expensive in the utilities ETF space. The fund’s managers believe that actively managing the inherent complexities of the utilities sector can unlock additional value for shareholders that a passive index can not. Reaves Asset Management – an investment management firm that specializes in the utilities and energy sectors – has been investing on the behalf of its clients for the past 3+ decades. Recently, the company entered the ETF space for the first time with the Reaves Utilities ETF (NASDAQ: UTES ). Reaves, however, is not new to the fund game. It also offers the open-end mutual fund Reaves Utilities and Energy Infrastructure Fund (MUTF: RSRAX ) and the closed-end fund Reaves Utility Income Fund (NYSEMKT: UTG ). Not only is Reaves entering the ETF space for the first time but it’s doing so with one of the few actively managed ETFs out there. Manager The Reaves company has been around for over 50 years and has been managing investor money for around 37. The company now manages a total of roughly $3B in a combination of its mutual funds, ETF and separately managed accounts. The ETF is managed by Louis Cimino, John Bartlett and Jay Rhame. Bartlett has been with the company for 20 years, Cimino 18 and Rhame 10. The research team at Reaves, according to the fund’s fact sheet, “averages over 20 years of experience.” Investment Process The management team uses a combination quantitative and qualitative approach in order to make investment decisions and, according to the fact sheet , uses the following criteria. Where this product differs from most other ETFs is that it’s actively managed. Betting that the fund’s active management can outperform a passive index may prove to be a risky proposition. In most cases, actively managed funds cost more to operate to than passive index funds due to the extra involvement necessary to manage the fund. According to ETFDB.com, this ETF’s 0.95% expense ratio would rank it as the highest annual expense ratio among the roughly two dozen utility-focused ETFs in the marketplace. The Utilities Select Sector SPDR ETF (NYSEARCA: XLU ) charges just 0.15% a year which means the Reaves ETF will need outperform by nearly a full percent per year just to come out ahead. That’ll be a tall order to fill regardless of who’s managing the fund. Holdings As of October 9, the fund has 21 holdings total. The top 10 holdings listed below account for 67% of fund assets currently. Prospects The ETF is debuting at a potentially advantageous time. Utilities as a whole have struggled this year – the Utilities Select Sector SDPR is down 4.8% year to date versus a 2.1% loss for the S&P 500. Investors had been anticipating a rate hike from the Fed and yields on the 10 year Treasury hit 2.5% earlier this year which made fixed income securities look more attractive and began rotating cash out of equities. As the prospect of a Fed rate hike looks to be getting pushed further out on the horizon and Treasury yields begin coming back down, the 3-4% yields offered by utilities began to look more and more attractive. While Reaves has been studying and managing utility assets for decades I still believe it’s going to have a difficult time overcoming the expense ratio over time. The fund currently has about $2.6M in assets and trades just a few hundred shares a day so bid-ask spreads could be large until the fund is able to operate a little more efficiently. All in all, due to the fund manager’s wealth of utility sector experience I would continue keeping an eye on this fund.

Global Stocks Shifting Positive

Along with the energy sector in the U.S., country ETFs around the world have experienced a big shift this week. Below you’ll see our trading range screen for the 30 largest country ETFs trading on U.S. exchanges. This screen gives you a great look at how global equity markets are trending in the near term. Last week, most of these country ETFs were below their 50-day moving averages and trending lower. This week, though, most have now re-taken their 50-day moving averages and broken their downtrends. Share this article with a colleague