Solar ETF

A Solar ETF may be just the thing you need if you believe that solar panels are the way of the future. Historically Solar energy has been too expensive to be profitable, but with new technological advances increasing the efficiency and price of solar energy it is becoming a “real” business.

There are basically two solar energy ETFs out there. These are TAN and KWT. And while both of them attempt to track the performance of solar there is one major difference between the two.

TAN

TAN is the Claymore ETF and tracks the MAC Global Solar Energy Index. The problem with investing into solar companies is that the majority of companies that make money with solar energy only get a small percentage of their total income that way.

So, many companies who sell solar energy also sell other energy sources or have other business practices. To combat this, the MAC Global Solar Energy Index that TAN tracks only invests into companies that make at least 33% of their income from solar energy.

Also companies that make over 66% of their income from solar energy are given more weight in the index.

The problem is that these companies also have other operations going on, so if the demand for solar power goes up, but the demand for something else that the company is invested into goes down the company may take a hit overall.

Even so, it should be affected as the demand for solar energy increases. If the demand increases many of these companies can also increase their solar power adventures giving them more exposure to the market.

KWT

KWT is a solar power ETF that works a little differently. Instead of tracking the MAC Global Solar Energy Index it tracks the Ardour Solar Index. This way only companies that make over 66% of their income from solar energy are included in the mix.

Essentially this means it should be more affected by the rise and fall of demand in solar energy then TAN would be. So the more exposure you want to solar energy and the less to other business practices the better KWT looks.

The only downside to this solar ETF is it may not be as diversified, as TAN since there are not a lot of large companies which make the bulk of their money from solar power.

Which Is Better?

Well if you are bullish on solar energy you should take a look at both of these ETFs. You can always use other indicators such as the past performance of the ETF and what individual companies the ETF is investing into to help you choose the right one.

Taking a look at all your options can give you confidence when you do start your journey.

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