Tuesday, June 24, 2008

Solar Energy ETFs: Don't Get Burned (KWT; TAN)

From BusinessWeek:

These volatile indexes show that sometimes there's little safety in numbers. Analysts suggest picking individual stocks instead...
...No Safe Haven

Unfortunately for investors, the ETFs have turned out to be almost as volatile as the individual stocks. Both were down more than double the Standard & Poor's 500-stock index's 1.7% drop on June 20. "Just buying the whole [solar] market means you just follow its ups and downs," says Morningstar (MORN) analyst Rick Hanna, who follows solar energy stocks. "If you do your homework, you should be able to do better than that."

That's because both funds are made up of mostly the same group of small- and mid-cap stocks. As of Mar. 31, First Solar was the largest holding in the indexes underlying both ETFs, comprising 9% of the Claymore fund and 11% of the Van Eck fund. Large-cap stocks generally don't meet the qualifications for the indexes underlying either fund, which require at least 33% of revenue from solar activities in the case of Claymore and 66% for the Van Eck fund. Index Universe Editor Matthew Hougan posted an in-depth comparison of the ETFs in April....MORE