Solar ETFs Struggle to Regain Their Footing

Solar stocks have experienced a disappointing year that has included volatile price swings and sub-par returns.  The decline in traditional energy prices has likely played a role in suppressing the gains in this industry group as well.

As a result of these factors, the Guggenheim Solar ETF (TAN) is struggling to return to regain positive momentum after a sharp drop in September and October that erased all of its gains in 2014.   TAN tracks 30 global solar companies that include hedge fund favorites Sunedison Inc (SUNE), First Solar Inc (FSLR), and SolarCity Corp (SCTY).

This clean energy ETF is dominated by U.S.-based holdings, with China and Hong Kong solar stocks making up a significant portion of the underlying companies as well.  The company sizes primarily fall into the small and mid-cap categories.  This ETF currently has over $300 million in total assets and charges an expense ratio of 0.70 percent. 

So far this year, TAN is clinging to a gain of 6 percent after having risen as much as 40 percent in early March. 

Despite the sharp drop earlier in the month, TAN has gained over 12 percent in just two short weeks and may continue to attract interest if stocks continue their recent strength. 

This fast moving industry typically entices aggressive investors who are interested in opportunities for outsized gains.  However, the same qualities that make solar stocks rising growth stars also introduce greater risks as well. 

Another competitor in this space is the Market Vectors Solar Energy ETF (KWT), which provide exposure to a slightly broader base of 34 global companies.  While KWT has followed a similar price path as TAN this year, this Market Vectors rival is still trading in the red for the year and has not experienced the same bounce in recent weeks. 

With several of the top holdings in both KWT and TAN set to report earnings in the near future, these ETFs have the potential to add to their gains and ultimately finish the year on a positive note as well.