Solar energy ETFs continue to fall out of favor with investors this year – seeing net outflows of $288 million and sinking deep into the red zone due to the cautious stance of the US Federal Reserve (Fed). Rising inflation led Fed officials to present plans to raise interest rates and reduce assets on their balance sheets at their last meeting. Investors fear that preventing rate hikes represents a headwind for solar companies and their projects, which are heavily dependent on low interest rates for financing.
Despite this bearish status, the world expects increased use of solar power due to its critical role in the transition to a low-carbon economy. According to Facts & Factors, the global solar power market could quadruple to $200 billion by 2026, four times the size of the market in 2019 (US Department of Energy). Long-term investors might view the recent solar ‘clipse’ as a buying opportunity and opt for solar energy ETFs to gain diversified exposure.
Investors can gain exposure to solar energy through Invesco Solar ETF (TAN) or Global X Solar ETF (RAYS). TAN is the largest in terms of assets under management ($1.92 billion) and aims to track the MAC Global Solar Energy Index (Index). The index is composed of companies in the solar energy sector distributed in different regions such as the United States (45%), China (23%), Spain (6.39%), Israel (4, 49%), Taiwan (4.23%) and Germany (4.12%), and in sectors such as information technology (58.52%), utilities (24.38%) and industrial products (11.91%), among others. The main names of TAN are SolarEdge Technologies (11%), Enphase Energy Inc. (9.13%), Xinyi Solar Holdings Ltd (8.37%), First Solar (7.12%), and Sunrun (5.10 %).
The fund has a total expense ratio of 0.66% and trades primarily on the NYSE ARCA. Since the beginning of the year, TAN has fallen by -14.7%.
European investors can gain access to the solar industry through the Invesco Solar Energy UCITS ETF (SOLR), the HANetf Solar Energy UCITS ETF (TANN), or the recently launched Global X Solar UCITS ETF (RAYZ). SOLR is the European lookalike of TAN ETF and tracks the same underlying index.
TANN by HANetf is the leading solar energy ETF in Europe and tracks the EQM Global Solar Energy Index (SOLARNTR), which focuses on companies that derive significant revenue from solar energy related activities. In terms of country exposure, the United States has the largest share (26.83%), closely followed by China (24.02%). Taiwan, Spain and Germany come next with 15.24%, 9.00% and 7.7% respectively. The portfolio has 42 stocks, the main ones being Luoyang Glass Company Ltd (4.41%), TSEC Corp. (3.78%), Gigasolar Materials Corp (3.38%), Motech Industries (3.38%) and Solaria Energia y Medio Ambien (3.31%).
TANN has a total expense ratio of 0.69% and trades on several European exchanges, including the London Stock Exchange (TANN LN, USD or TANP LN, GBP), Deutsch Brese (TANN GY, EUR), Euronext Paris ( TANN FP, EUR) and Borsa Italiana (TANN IM, EUR). Since the beginning of the year, TANN has fallen by 16.6% (in euros).
Find and compare over 8,000 ETFs with our ETF finder.