Solar ETFs fall out of favor

Solar ETFs continue to go out of favor this year ­­­– witnessing net outflows of $288 million and sinking deep into the red zone on hawkish U.S. Federal Reserve (Fed) stance. Rising inflation has led the Fed officials to outline plans for interest rate hikes and a reduction in the asset holdings on their balance sheet at their last meeting. Investors fear that the impending rate hikes would represent a headwind for solar companies and their projects, which are highly dependent on low-interest rates for financing.

Long-term Solar investment thesis remains strong

Despite the bearish status, the world expects increased use of solar energy due to its vital role in the transition to a low-carbon economy. According to Facts & Factors, the global market for solar energy could quadruple to $200bn by 2026, quadruple the market size in 2019 (U.S. Department of Energy). Long-term investors might consider the recent solar "eclipse" as a buying opportunity and opt for Solar ETFs to gain a diversified exposure.

Investing in America-domiciled Solar ETFs

Investors can gain exposure to Solar energy via Invesco Solar ETF (TAN) or Global X Solar ETF (RAYS). TAN is the largest by assets under management ($1.92bn) and aims to track the MAC Global Solar Energy Index (Index). The Index is comprised of companies in the solar energy industry spread across different regions such as the United States (45%), China (23%), Spain (6.39%), Israel (4.49%), Taiwan (4.23%), and Germany (4.12%); and sectors such as Information Technology (58.52%), Utilities (24.38%), Industrials (11.91%) among other. TAN's leading names include SolarEdge Technologies (11%), Enphase Energy Inc. (9.13%), Xinyi Solar Holdings Ltd (8.37%), First Solar (7.12%), and Sunrun (5.10%).

The fund has a total expense ratio of 0.66% and trades primarily on the NYSE ARCA. Year-to-date, TAN fell by -14.7%.

Investing in Europe-domiciled Solar ETFs

Investors in Europe can have access to the solar industry via Invesco Solar Energy UCITS ETF (SOLR), HANetf Solar Energy UCITS ETF (TANN), or the newly launched Global X Solar UCITS ETF (RAYZ). SOLR is the European doppelganger of TAN ETF and tracks the same underlying index.

TANN by HANetf is the first pure-play Solar Energy ETF in Europe and tracks the EQM Global Solar Energy Index (SOLARNTR); which focuses on companies that derive significant revenue from solar energy-related business. In terms of country exposure, the United States has the highest share (26.83%), followed closely by China (24.02%). Taiwan, Spain, and Germany come next with 15.24%, 9.00%, and 7.7% respectively. The portfolio has 42 holdings, led by Luoyang Glass Company Ltd (4.41%), TSEC Corp. (3.78%), Gigasolar Materials Corp (3.38%), Motech Industries (3.38%), and Solaria Energia y Medio Ambien (3.31%).

TANN has a total expense ratio of 0.69% and trades on multiple European exchanges including the London Stock Exchange (TANN LN, USD or TANP LN, GBP), the Deutsch Börse (TANN GY, EUR), the Euronext Paris (TANN FP, EUR), and the Borsa Italiana (TANN IM, EUR). Year-to-date, TANN fell by -16.6% (EUR terms).

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