The boom in alternative energy stocks has given rise to a boon in alternative energy ETFs. More than a half-dozen funds launched in the past two years, and more are on the way.
The newest wrinkle is funds that focus on specific technologies. Specifically, two ETFs have launched in the past month that provide access to the solar energy market.
How should investors choose between the Claymore MAC Global Solar Energy Index ETF (NYSE Arca: TAN) and the Market Vectors - Solar Energy ETF (AMEX: KWT)?
The choices aren't obvious. Both funds offer exposure to the global solar energy market and both charge 0.65% in expenses.
But if you dig deeper, there are important differences that will translate into different performance in different cycles.
Let's take a look.
TAN And KWT Compared
The place to start is with the index methodology. The Claymore ETF (TAN) tracks the MAC Global Solar Energy Index, while the Market Vectors ETF (KWT) tracks the Ardour Solar Energy Index.
Both indexes aim to provide global exposure to the solar energy market. Both hold stocks listed on exchanges in developed markets around the world, although many of those stocks are headquartered in emerging markets like China.
Creating A Pure-Play Index
The challenge in creating a good solar energy index is that many players in the solar market are conglomerates: giant companies like GE that get just a small fraction of their income from solar energy.
The success or failure of the solar market won't have much of an impact on these diversified behemoths. So, including them in an index in theory at least makes the index less sensitive to the solar market.
To avoid this problem, both indexes have screens and/or weighting systems in place to emphasize "pure plays.">>>MORE