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A Cloudy Issue for Solar ETF ‘TAN’

This article was originally published on ETFTrends.com.

The Invesco Solar ETF (TAN), the largest exchange traded fund dedicated to solar equities, is soaring this year, up nearly 26%, but slowing solar installations are a factor to consider before embracing solar investments.

TAN, which is nearly 12 years old, follows the MAC Global Solar Energy Index. That index “is comprised of companies in the solar energy industry. The index is computed using the net return, which withholds applicable taxes for non-resident investors,” according to Invesco.

“Much was made at the time about solar installations breaking record numbers and asserting itself as a much more integral part of energy consumption. But following a high-water mark reached in 2016, the pace of solar installations has fallen off. The same holds true for residential installations,” notes Fitch Ratings.

Until solar is more widely embraced by politicians at the national level, “investors need to understand that this fund is meaningfully more volatile than its peers and likely the majority of investments you may own,” according to Seeking Alpha. “Even though the fund is down nearly 30% year to date, it may continue to drop in the future as the impacts of a broader recession take hold.”

Installation Investigation

Some states are moving toward increased solar installations. For instance, California will require all new homes built there to have solar panels starting in 2020. However, those government efforts are no guarantees of success for solar users or the sector's investments.

“However, numerous instances of unrealized promises and hardships driven by inaccurate forecasts, asymmetric information or less than ethical sales practices from middlemen are putting the brakes on this rapidly growing sector. Long Island provides an example where a good idea to save energy costs could become problematic without enough guardrails in place to protect it,” according to Fitch.

Related: Investing With a Conscious With Goldman Sachs ETF

In California, some data points suggest some homeowners are taking loans for solar installations that they cannot afford.

“There has been evidence of homeowners taking out loans for solar panels they cannot afford because some contractors are not being transparent with homeowners on how to pay for them,” said Fitch. “The state, in response, has proactively taken steps to tighten protections for homeowners from opportunistic solar installation operators by passing state legislation to reform the PACE program.”

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