Solar ETFs Face off: TAN vs. KWT

With global energy demand on the rise, nations, businesses and individuals are looking more than ever for new, and more importantly, renewable sources of energy. This new surge of interest in the renewable space has many looking to the mother of all renewable resources, the sun. Now that the world is starting to take solar power seriously, investors are taking a second look at now profitable solar companies, and the ETFs that track them.

Currently there are two ETFs that dominate the solar sector, Claymore’s Global Solar Energy Index (TAN) and Van Eck’s Market Vectors Solar Energy ETF (KWT). At first glance these two funds look to be quite similar, and in many aspects they are. However, a closer look reveals many of their differences in structure, size, and value.

The first solar energy ETF to hit the market was Claymore’s TAN, which tracks the MAC Global Solar Energy Index. This index is comprised of 25 securities covering small (42%), mid (30%), and large cap (28%) companies. Shortly after the launch of TAN, Van Eck’s KWT hit the market, which tracks the Ardour Solar Energy Index. This index is comprised of 27 securities covering small (35%), mid (38%), and large cap (27%) companies. When looking at the top five holdings of the two funds as a percentage of the total fund, TAN’s top five make up 34%, whereas KWT’s top five make up a much larger 47% of the fund. Also worth noting is MEMC Electronic Materials (WFR) is absent from KWT, but makes up roughly 5% of TAN and is listed as the sixth largest holding.

On a value comparison, TAN’s average trailing P/E ratio is around 45, while KWT is sporting a 55 trailing P/E. When looking at the top three in country allocation, TAN is 30% China, 29% Germany, and 26% United States compared to KWT’s 26% China, 36% Germany, and 24% United States.

Both of these ETFs are good investments for direct exposure to the solar energy sector, however Claymore’s TAN seems to be the better diversified of the two and would be our choice if we decided to put solar energy to work for us.