Up 90% this year, a performance that makes it one of the best non-leveraged sector ETFs, it is hard to ask the Guggenheim Solar ETF (TAN) for much more. However, TAN has some unfinished business after spending several years in a seemingly never-ending downward spiral.
That unfinished business includes reaching and exceeding its previous all-time high. TAN traded as high as $31.95 on Wednesday, good enough for a new 52-week, but the ETF’s split-adjusted all-time high is $33.16, which was printed in February 2012 after the fund was reverse split on a 1-for-10 basis.
There is a fundamental case for TAN and the rival Market Vectors Solar Energy ETF (KWT) to print higher prices in the near-term. The U.S. is increasing solar panel installations, supporting the fledgling photovoltaic industry, along with related ETFs. Additionally, GTM Research calculates that about two-thirds of all distributed solar in the U.S. was installed in the past two and half years, and cumulative installations of distributed photovoltaic systems will double by 2016. [A Ray of Light for Solar ETFs]
Bolstering TAN’s fundamental outlook is almost 5% weight to Elon Musk’s SolarCity (SCTY), a stock that has nearly tripled this year. More importantly, TAN is heavily allocated to China. China and Hong Kong combine for 40% of TAN’s country weight, just below the 42.3% allocated to U.S.-based solar names.
China has boosted capacity in an effort to help its previously ailing solar firms. The greater capacity will help the developing country diminish its reliance on exports and ease oversupply of photovoltaic panels – last year, solar stocks plunged as a supply glut contributed to a 20% plunge on the average price of solar panels. Additionally, the Chinese government is providing tax breaks for solar companies to acquire, merge or reorganize their operations in an attempt to consolidate the industry. [Solar ETFs Shine as China Boosts Capacity]
Bullish fundamentals have sparked a favorable technical outlook for TAN. Deron Wagner of Morpheus Trading Group says if TAN continues to hold above $29-$30, upside from here could be significant for the fund.
“If TAN continues to hold this trendline, we should eventually see another wave up that could potentially take the price to the $40 area,” Wagner wrote. A move to $40 represents more than 25% upside from where TAN closed Wednesday.
Guggenheim Solar ETF
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.