This is an article posted on my old website ATMcharts.com (no longer active).
In early 2015 Solar stocks and ETFs rallied sharply as Chinese Scam Hanergy Thin Films ran up 500% and became the largest holding in Solar ETF TAN by 2.5x.
Since then Hanergy has been pulled from Solar ETFs and the fund has dropped 60%.
The point is, if you still wanted to invest in a Solar ETF, you need to always be aware of the holdings of the funds. Clean Energy ETF QCLN had no shady China Solar names and it’s only down 15% from May 2015.
The Old Post:
Solar stocks have been on a tear this year with the Guggenheim Solar ETF rallying as much as 45%.
Obviously, that’s a very high number considering the S&P 500 is up 3%. Naturally, you start to wonder where those gains come from. Well, it turns out TAN’s current largest holding is a Chinese stock Hanergy Thin Films that has gone on a 500% run and has come under great scrutiny of late.
“Questions have been circling in recent months over Hanergy’s business. Roughly 62% of last year’s sales were made to its privately held parent company, Hanergy Holding Group, according to The Wall Street Journal. Barron’s Shuli Ren writes today that the Chinese financial press are raising more questions about stalled projects and unverified financial deals.”
Hanergy is also the second largest holding in the Market Vectors Solar ETF KWT as well as the 4th largest in iShares global clean energy ICLN.
Unless you’re looking for that dicey, speculative china kicker that’s already bubbled up in your passive portfolio, the solar ETF pickings are slim until these funds re-balance at the end of the quarter.
If you’re looking for an alternative, The First Trust NASDAQ clean energy ETF QCLN doesn’t include any of the Chinese companies, and offers a more broad representation of the clean energy trade. Note it’s only up 12% year-to-date
This is just another good reason to always check the holdings, construction and key statistics of any ETF you’re considering owning.
Further reading: More from Chris Dieterich at Barron’s