Eschew the sun-related euphemisms for a moment and focus on the basics. The basics being solar ETFs have delivered jaw-dropping performances this year. This is how good the two main solar ETFs have been in 2013. The Market Vectors Solar Energy (KWT) is up almost 77% year-to-date and that looks BAD compared to the 114% gain delivered by the rival Guggenheim Solar ETF (TAN).
TAN is the top-performing non-leveraged ETF this year. KWT, the less volatile of the two funds, is number two on the non-leveraged sector ETF performance list. Simply put, these ETFs probably do not need much more good news, but they got some over the weekend. [Solar ETFs Notch Nearly Triple-Digit Returns]
On Sunday, China’s Ministry of Finance said it will give tax breaks to solar products manufacturers in an effort to help those companies still grappling with tepid demand. “The ministry said in a short statement on its website that producers of solar power products will receive immediate refunds of 50 percent of value-added taxes,” according to Reuters.
The success of China’s still-ailing solar industry or the government’s ability to support those companies is critical to the fortunes of KWT and TAN. KWT and TAN allocate 23.9% and 27.3%, respectively, of their weights to Chinese solar names. Another 12.6% of TAN’s geographic exposure goes to Hong Kong stocks while KWT throws 19.9% to Taiwan.
China has stepped up to help its solar firms to the benefit of TAN and KWT. Earlier this year, China said it will expand solar capacity to 35 gigawatts, or five times current capacity, to 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. [Solar ETFs Shine as China Expands Capacity]
Chinese solar companies still need some balance sheet help. The Ministry of Finance cited the China Renewable Energy Society in saying the country’s 10 largest solar firms are $16.34 billion in debt “with a debt to asset ratio above 70 percent on average,” according to Reuters.
Still, Deutsche Bank last week raised its price target on Trina Solar (TSL) to $18 from $11.50 and its price target on Yingli Green Energy (YGE) to $8 from $5. Those stocks are two of TAN’s seven largest holdings combing for about 10% of that ETF’s weight.
While it remains to be seen if Sunday’s news will boost TAN and KWT, the former is flirting with split-adjusted all-time highs and some observers believe the fund could run to $40. [Solar ETF Aims for All-Time High]
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.