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With the recent update from the Obama administration regarding the allocation of more than $120 million for clean energy programs developing solar power and other renewable technology, ETFs focusing on top solar firms are definitely on our radar. The fund will be deployed across 24 states to help Americans gain access to cleaner and low-cost energy sources. Although solar stocks have got a beating due to plunging oil prices and the meltdown in the Chinese stock market, they hold greater promise. Surging demand for solar power, massive panel installations, advanced technologies, global warming issues and Obama’s ‘Climate Action Plan’ will ensure that the solar boom is not fizzling out anytime soon. The good news is that solar energy systems have increasingly become affordable, indicating its potential for wide acceptance among the masses. According to the White House report, solar energy is now cost-competitive with conventional energy, such as coal or natural gas, in 14 states. According to a report by GTM Research and Solar Energy Industries Association, solar photovoltaic installations are expected to go up to 7.7 gigawatts (“GW”) this year from 6.2 GW in 2014, where a GW represents 1 billion watts, enough to power roughly 164,000 homes. Here we will discuss two ETFs, Guggenheim Solar ETF (NYSEARCA: TAN ) and only a few months old Global X YieldCo ETF (NASDAQ: YLCO ). Both focus on the renewable energy sector expecting to ride on the bullish trend in solar space. Though TAN and YLCO have similar exposures, there are certain key differences between the products. Below, we have highlighted the products in greater details. TAN Launched in April 2008, this ETF follows the MAC Global Solar Energy Index, holding 27 stocks in the basket. First Solar Inc. (NASDAQ: FSLR ) and SolarCity Corp. (NASDAQ: SCTY ) take the first and second positions with a combined 15.3% share. The U.S. firms dominate the fund’s portfolio with 34%, followed by China (28%). The product has amassed over $264 million in its asset base and trades in solid volume of around 260,000 shares a day. It charges investors 70 bps in fees per year. The fund shed around 10.3% in the year-to-date time frame (as of Sep. 16, 2015) and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. YLCO Launched this May, the fund targets a unique segment of the market, namely the YieldCo. A Yieldco is a dividend growth-oriented public company that bundles renewable and/or conventional long-term contracted operating assets. It is often compared to MLPs as they are both energy-related assets, created by their parent company, in order to deliver stable cash flows to investors. To attain its objective, the fund tracks the Indxx Global YieldCo index. The ETF holds only 20 securities with Brookfield Renewable Energy Partners (NYSE: BEP ) and TerraForm Power Inc. (NASDAQ: TERP ) (formerly a SunEdison (NYSE: SUNE ) Yieldco) taking up the first and second spots. Both account for an 18.3% share in the basket. The fund has a global footprint as well with the U.S. occupying the top spot at 39%, followed by Canada with 28%. YLCO has gathered a meager $3.4 million in assets and charges 65 bps in fees. It trades at an average volume of more than 4,600 shares. The product was down 26% since its inception. The Verdict Both funds charge comparable fees and are a tad expensive. However, TAN is widely diversified as it holds more securities and is less concentrated in its top 10 holdings compared to YLCO. Further, TAN is higher in AUM and relatively more liquid as it trades in a higher volume compared to YLCO. The higher volume of TAN also suggests that bid ask spreads should be relatively tight for this fund and total trading costs shouldn’t be much higher than the explicit 0.70% expense ratio. Notably, TAN has higher yield compared to YLCO. Both the funds have higher exposures to U.S. stocks with TAN lagging behind YLCO. However, the good thing about YLCO is that it has no exposure to Chinese firms, which could be affected by the economic turmoil in the world’s second largest economy. Further, YLCO is expected to be less volatile in nature than TAN as it tracks companies that have spun off their more steady power producing operations as Yieldco. Though YLCO doesn’t look bad, we pick TAN as the winner due its higher exposure to top solar firms, diversified nature, higher liquidity and better yield. Data Point TAN YLCO Expense Ratio 0.70% 0.65% Total Holdings 27 20 Top 10 Holdings 54.9% 66.7% Assets in the U.S. 34% 39% Dividend Yield 2.2% 1.2% AUM $264 Million $3 Million Average Volume 260,000 4,600 Original Post Scalper1 News
Scalper1 News