Wednesday, April 16, 2008

A One Stop Shop for Solar - Get TAN

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A new ETF hit the market yesterday (there seems to be a slew every week); this one focusing on the solar space. Now, in general, I prefer individual equities over most ETFs because I like to pick and choose among individual companies, or build a small basket of names in a sector, as opposed to buying 20,30,or 50 names - but I actually like the new Claymore Global Solar Energy ETF (TAN) for multiple reasons.

First, it is a relatively concentrated approach - 25 names. As with my fund I prefer focus rather than buying 100s of names.

Second, unlike some ETFs the top 2-3 positions do not dominate the ETF i.e. carry 35-40% of the weighting; in this case the top 3 holdings make up 23% of the index but many stocks carry 3, 4, and 5% weightings.

Third, the global nature of the ETF - solar, unfortunately, is an area the United States is way behind on - most of the major firms are European or more recently Chinese. So in 1 fell swoop an American investor can get exposure to the major European firms such as Renewable Energy, Q-Cells, and Solarworld, which are difficult to get access to for most individual investors.

Fourth, I'm a big believer in solar in the long run - it is not a fad like most pundits sneer at on TV or on most web sites. That said, it is a lot like any emerging industry - we have no idea who the eventual winners will be and there will be significant potential displacement. So the landscape 5 years from now or 10 could be very different than it is now [Jan 3: The Long Term in Solar] So by buying a large basket of names, one reduces the risk associated with individual company exposure.

Fifth, while I do not know the eventual winners, I continue to believe in the long run that size, scale, and R&D investment will give a leg up - and the top weighted stocks in this index are chock full of those type of companies. Will those be the names that the speculative momentum traders run up the most in the near term? Perhaps not. But they should be the ones with the best chance to be left standing in half a decade - as I believe some of the smaller names being run up 80% in 3 weeks or down 60% in 2 weeks, probably will be trading on pink sheets by 2013.

I've pointed out some "one stop shop" ETFs in the past in other sectors I really like - agriculture [Sep 7: This MOO for You? An ETF to Play the Global Agriculture Boom] and coal [Jan 14: New Coal ETF (KOL) Introduced from Van Eck Global] but this one is probably the most advantageous for the "small guy" versus buying the individual names for the reasons I laid out above. Granted, the BEST way to invest is to give your money to a potential mutual fund manager who blogs daily, and knows these individual names inside and out - but until that becomes a reality, it might be time to get a TAN. ;)

Please note, I expect the volatility in this ETF to be immense as solar is the home playing field of momentum traders and speculators....

Long Trina Solar, LDK Solar in fund; no personal position

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