Bears Growl At Solar ETF Holdings

Exchange traded funds holding solar stocks have been drubbed in recent months. Heavy allocations to Chinese stocks at a time when stocks in the world's second-largest economy are flailing is a trait that is not helping the likes of the Guggenheim Solar ETF TAN and the Market Vectors Solar Energy ETF KWT.

Something else that is not helping those ETFs is the aggressiveness with which short sellers are going after some of the funds' holdings, mainly of the Chinese variety.

JinkoSolar Holding Co., Ltd. JKS has become a favorite target of short sellers as 22 percent of that company's shares are now sold short, according to Bloomberg. However, shorts are not stopping there with their bearish bets on Chinese solar companies. Trina Solar Limited (ADR) TSL has 12 percent of its shares outstanding sold short while that number is 11 percent for JA Solar Holdings Co., Ltd. (ADR) JASO, according to Bloomberg.

Among Chinese companies trading in the US, JinkoSolar, Trina Solar and JA Solar are the second-, third- and fourth-most heavily shorted. Those bets have been paying off, too. Over the past month, JinkoSolar, JA Solar and Trina are off an average of 14.2 percent, contributing to a 90-day slide of over 27 percent for TAN, the largest of the two solar ETFs.

As of July 31, JinkoSolar, Trina and JA Solar combined for nearly 11 percent of TAN's weight. The Market Vectors Solar ETF, which has tumbled 25.7 percent over the past 90 days, devotes a combined 8.6 percent of its weight to Trina, JA Solar and JinkSolar, according to Market Vectors data.

Elon Musk's SolarCity Corp SCTY is KWT's largest holding at a weight of almost 8.6 percent. TAN has a SolarCity weight of 7.3 percent, making that stock the ETF's second-largest holding. China is TAN's largest country allocation at 46.7 percent, or more than 930 basis points ahead of the U.S. KWT's China weight is 33.8 percent, just behind the US at 36 percent. Either way, those data points confirm the vulnerability of solar ETFs to weakness in Chinese stocks.

After soaring in the first months of the year, solar ETFs have stumbled since early prices as oil prices have plunged. Rising oil prices are usually a positive catalyst for solar stocks and ETFs because, as crude rises, solar receives positive attention as a cost-effective alternative to fossil fuels. Since May 1, KWT is off 22.8 percent while TAN is lower by nearly 26 percent. The United States Oil Fund USO is lower by 22.5 percent over the same period.