May ETF Report: Solar Surges, Australia Struggles

Zacks

The ETF industry had another solid month in May as global markets continued their upward trend. Several ETFs experienced massive inflows and posted double-digit gains in the time frame, buoyed by positive sentiments across the globe. However, some level of volatility has emerged in the market in the last few days of the month, and this has spilled over into June as well.

In fact, both the Dow Jones Industrial Average ETF (DIA) and SPDR S&P 500 (SPY) recorded a solid gain of roughly 3.3% for the month.

Meanwhile, yields on 10-year Treasury rebounded from its record low and currently stands at above 2%. This suggests that investors are back into Treasury bonds for safe haven investments amid concerns of the tapering off the monetary stimulus program (read: Long-Term Treasury Bond ETF Investing 101).

ETF Industry

Nearly a dozen of new products hit the market—while a few were delisted—bringing the total number of ETFs close to the 1,470 mark with nearly $1.5 trillion in total assets under management.

Below, we have highlighted some unleveraged and non-inverse ETFs which were the star performers of the month and some others that have turned out to be major disappointments (see more ETFs in the Zacks ETF Center).

Big Winners

Among all the ETFs which lured investors last month, the Guggenheim Solar ETF (TAN) turned out to be the real winner, adding a robust 25% in May alone. And, in the year-to-date time frame, the ETF has surged over 59%, suggesting an incredible level of positive momentum.

This fund tracks the MAC Global Solar Energy Index, which offers exposure to companies that produce for end-users, manufactures of solar panels, and those that are engaged in solar power system sales, distribution, installation, integration or financing. TAN manages an asset base of $107.2 million and charges 65 bps in fees and expenses.

The fund holds 26 securities in the basket with heavy weightings (18.39%) dedicated to First Solar (FSLR) alone. From a country perspective, the U.S. makes up about half of the total assets while China and Hong Kong comprise 17.69% and 17.46%, respectively, and give a decent exposure.

Unsurprisingly, the ETF is heavily concentrated in the technology sector, while small and mid cap stocks dominate from a cap perspective.

The global solar industry is rebounding nicely from its dismal performance last year thanks to increasing panel prices, a surge in the demand for solar power plants and a relatively high oil price (read: Can Solar ETFs Continue Their Bull Run?).

Solar is now the fastest growing sector within the U.S. clean tech industry. Some big solar companies like FSLR and Sunpower (SPWR) have survived the vicious downturn and seen a steep surge in their share prices from last year. Smaller companies like AIES and Enphase Energy (ENPH) have also done remarkably well and have managed to increase share in a down market.

In such a positive backdrop, the other solar ETF – Market Vectors Solar Energy ETF (KWT) – is also up 41.78% year-to-date and 17.84% in May alone. This fund tracks the Ardour Solar Energy Index, holding 34 stocks.

The product is highly concentrated in its top 10 holdings, accounting for nearly 61% of assets. Here again, FSLR takes the top spot in the basket with 13.61% while Memc Electric Materials (:WFR) and Wacker Chemie round off to the next two spots with a combined 12.29% share.

The product is tilted towards the information technology and industrials sectors with nearly 47.8% and 44.2% share, respectively. In terms of country allocations, American securities dominate the portfolio, with 40.1% going to the U.S. while Taiwan and China account for 21.6% and 10.9% of the assets, respectively. It has attracted only $14.9 million in AUM while charging 66 bps in annual fees from investors.

Another ETF – First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) – was the best performer in May. The fund has gained an impressive 54.62% in the year-to-date period while it recorded a gain of 22.23% in May alone.

This product follows a benchmark of U.S. clean energy companies, giving exposure to about 37 firms in total. Fees are a bit less for this product at 60 basis points a year. The ETF has amassed $41.2 million so far in the year (read: Clean Energy ETFs: The Real Bull Market?).

Technology firms dominate this ETF, accounting for just over two-thirds of the assets. In terms of capitalization exposure, large caps aren’t really part of this fund, as the focus is on small and micro cap firms, which account for over half of the fund’s assets.

QCLN got a boost in the month as Tesla Motors (TSLA) radiated optimism in the entire space with impressive earnings and a positive report from Goldman Sachs. TSLA occupies the top position in the basket and makes up for 17.55% of QCLN.

Top Losers

While solar ETFs and QCLN rewarded investors with a handful of profits, iShares FTSE EPRA/NAREIT Asia Index Fund (IFAS) and iShares MSCI Australia Small-Cap Index Fund (EWAS) turned out to be top losers of the month.

IFAS provides exposure to the Asian real estate market and tracks the FTSE EPRA/NAREIT Developed Asia Index. The fund holds 80 securities and puts around 47% of assets in top 10 holdings. Mitsubishi Estate, Mitsui Fudosan and Westfield occupy the top three positions with a combined share of 22.25%.

In terms of individual countries, Japan enjoys the maximum allocation with a share of 37.29% while Hong Kong, Australia and Singapore also get double-digit allocations with a share of 24.99%, 21.60% and 12.60%, respectively (read: Inside the Crash in Japan ETFs).

The product has amassed $43.9 million it its asset base while charging investors 48 bps in annual fees. The ETF had a terrible run losing 14.27% in the month of May. However, the fund is down only 1.71% year-to-date.

Australia is witnessing a downturn of late too due to the increased concerns over the imminent end of the Fed stimulus program soon and slowing growth in China, a major importer of Australian natural resources (read: Australia ETFs to Play the Coming Shale Boom).

In such a scenario, ETFs tracking the country are the least preferred choices among investors incurring double-digit losses. Proving this point, EWAS turned out to be the worst performing ETF in the month. The fund has recorded a loss of 12.84% in May while its year-to-date loss stands at 12.31%.

This ETF provides broad exposure to 186 small cap companies in which it invests an asset base of $1.1 million. The product seeks to match the price and yield performance of the MSCI Australia Small Cap Index, before fees and expenses.

The fund is highly diversified across each security as none of them holds more than 2.50% share in the basket. It is also well spread across variety of sectors, although consumer discretionary, materials, financials and industrials enjoy double-digit allocations in the fund’s basket with less than 20% share (read: Two Sector ETFs Posting Incredible Gains).

Another small cap Australian ETF – IQ Australia Small Cap ETF (KROO) – has also performed badly in the month and included in the top five worst performing ETF list. The ETF was down 11.45% in May and is now down 14.70% in the year-to-date timeframe.

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