As the world transitions toward renewable energy, investing in Solar exchange-traded funds has become a popular way to tap into the growing solar industry. Solar exchange-traded funds offer investors a way to diversify their portfolios while contributing to a sustainable future. In this guide, we’ll delve into what Solar ETFs are, their benefits, top-performing Solar ETFs, and how you can get started with investing in them.
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What is a Solar ETF?
A Solar Exchange-Traded Fund (ETF) is a type of investment fund that trades on a stock exchange (just like a share of stock) and is focused on companies involved in the solar-energy industry.
Here’s the breakdown:
It holds a basket of stocks of companies engaged in solar manufacturing, installation, equipment supply, solar project development, and sometimes utilities with strong solar portfolios.mInvestors buy shares of the ETF rather than buying each individual company, so you get diversified exposure to the solar sector.
How Do Solar ETFs Work?
Solar exchange-traded funds function similarly to traditional ETFs. They pool investments from multiple investors to buy shares of solar energy companies. The performance of a Solar ETF is typically tied to an underlying index that tracks solar energy-related companies. Investors can buy and sell shares of Solar exchange-traded funds on stock exchanges, offering liquidity and flexibility.
Key Benefits of Investing in Solar ETFs
1. Diversification
Diversification is the practice of spreading money across multiple investments to minimize risk from poor performance. Its, like mutual funds, are more diversified than individual stocks or bonds. However, choose wisely as some ETFs may have narrow investment focus, making them less diversified than broad stock indexes.
2. Ease of Trading
It simplifies trading by bundling securities and allowing trading on exchanges. They offer exposure to hundreds of securities at once, reducing the time and cost of attempting to replicate them on your own. They are listed on public exchanges, allowing trading during market hours and real-time price changes.
3. Low Costs
They charge an expense ratio to offset administrative costs, often being lower than other investment alternatives, with the average exchange-traded funds costing half as much as a mutual fund.
4. Wide menu of investment options
Thousands of exchange-traded funds track various asset classes, commodities, and currencies worldwide. These exchange-traded funds can help investors gain exposure to popular stock-market indexes, specific bonds, or the US dollar’s performance. High-risk investors can buy levered or inverse ETFs, which move twice the daily price movement of an index or benchmark, providing more exposure over the short term. However, these options are at higher risk than traditional ETFs and unsuitable for buy-and-hold investors.
5. Tax advantages
Taxes apply to investments in taxable accounts like brokerage accounts and funds like exchange-traded funds and mutual funds. ETF structure can reduce annual taxes, improve tax efficiency, and be useful for tax-loss harvesting. They track indexes and make a few changes to their holdings, making them beneficial for investors.
6. Transparency
Exchange-traded funds offer transparency in investment, tracking indexes and providing daily portfolios, helping investors understand their investments. This knowledge can help determine which ETF aligns with their goals.
Top Solar ETFs
As mentioned, as of mid-2020, the Invesco Solar ETF is the only exchange-traded fund investing exclusively in solar energy firms. Additionally, investors can purchase more generic clean energy ETFs that include investments in wind and water power firms to increase their exposure to solar energy companies. Three of the best solar energy exchange-traded funds are shown below; it’s specific composition is as of May 2020.
1. Invesco Solar ETF (TAN)
Invesco launched this exchange-traded fund in 2008 with the goal of replicating the MAC Global Solar Energy Index. The index is made up of a range of businesses involved in the solar power sector, such as those that produce components for solar power equipment, install or maintain solar energy infrastructure, and sell solar energy to the general public and power companies.
The Invesco Solar exchange-traded funds are primarily focused on the solar energy sector and usually consist of 25 to 35 holdings, with a large portion of the portfolio being concentrated on the top three or four holdings. The top four assets held by the fund are:
- SEDG:NASDAQ, or Solar Edge Technologies Inc.
- NASDAQ: Enphase Energy Inc.
- FSLR:NASDAQ: First Solar Inc.
- Solar ASA Scatec (STECF:OTC)
When combined, they account for about 35% of the fund’s holdings. The fund’s cost ratio, which stands at 0.71%, is marginally higher than the sector average, which is 0.63%. Its year-to-date performance in 2020 is 9.61%. With over $550 million in total assets under management, it is the second most popular exchange-traded fund in the renewable energy industry.
2. iShares Global Clean Energy ETF (ICLN)
With over $625 million in assets under management, Blackrock’s iShares Global Clean Energy exchange-traded funds, which were also established in 2008, are the most popular exchange-traded funds in the alternative energy space. It tracks the S&P Global Clean Energy Index, which is made up of companies involved in wind power, solar power, biofuels, geothermal power, and hydroelectric power.
Of the fund’s 30 holdings, the top three mirror the top holdings of the Invesco Solar Energy exchange-traded funds:
- Solar Edge Technologies, Inc.
- Energy Enphase Inc.
- First Solar, Inc.
The majority of the remaining assets in the portfolio are invested in businesses that offer further alternative energy sources. With an expense ratio of only 0.46, the iShares Global Clean Energy exchange-traded funds is far below the industry average. With a 1.45% year-to-date performance, solar energy stocks are outperforming alternative energy stocks on the whole.
3. Invesco WilderHill Clean Energy ETF (PBW)
The Invesco WilderHill Clean Energy exchange-traded fund, which was established in 2005, is another product from Invesco and is the third most popular exchange-traded fund in the alternative energy industry. By including businesses that are not directly active in the renewable energy sector but yet contribute technology utilized in the field or have other ties to it, the exchange-traded funds are thought to provide a wider base of exposure to the sector. The WilderHill Clean Energy Index is monitored by it.
Each of the roughly 40 holdings in the Invesco WilderHill Clean Energy exchange-traded fundsaccounts for 2% to 3% of the overall portfolio. These are the top three holdings:
- Energy Enphase Inc.
- TSLA:NASDAQ, or Tesla Inc.
- The NYSE-listed NIO Inc.
With an expense ratio of 0.70%, the ETF is comparable to the Invesco Solar Energy exchange-traded funds . The fund is up 2.28% so far in 2020.
Facts To Know About ETFs
1. Solar ETFs Focus on Solar Energy Companies
Solar exchange-traded funds specifically target companies involved in solar energy production, technology, and infrastructure. This includes solar panel manufacturers, renewable energy developers, and component suppliers.
2. They Offer Diversified Exposure
Investing in Solar exchange-traded funds gives you access to a broad range of companies within the solar sector, reducing the risk associated with individual stock investments.
3. Solar ETFs Benefit from Global Clean Energy Trends
The growing emphasis on sustainability, government subsidies, and corporate commitments to carbon neutrality fuels the demand for solar energy, positively impacting Solar exchange-traded funds.
4. They Are Traded Like Stocks
Solar exchange-traded funds are listed on major stock exchanges and can be bought or sold like regular stocks. This makes them a liquid and flexible investment option.
5. Leading Solar ETFs Have Strong Track Records
Top-performing Solar exchange-traded funds, such as the Invesco Solar ETF (TAN) and Global X Solar ETF (RAYS), have shown impressive growth, reflecting the sector’s expanding potential.
6. Expense Ratios Vary
While Solar exchange-traded funds are cost-effective, their expense ratios can differ significantly. Be sure to compare options to minimize fees and maximize returns.
7. Solar ETFs Align with ESG Goals
Environmental, Social, and Governance (ESG) investing is on the rise, and Solar exchange-traded funds fit seamlessly into ESG-focused portfolios, offering financial growth and environmental impact.
8. Volatility Is a Consideration
The solar energy sector can be volatile due to policy changes, raw material costs, and global market conditions. Solar exchange-traded funds help mitigate this volatility through diversified holdings.
9. Global Growth Drives Opportunities
Solar exchange-traded funds often include companies from around the world, allowing investors to tap into the booming global renewable energy market.
10. They Are Suitable for Long-Term Growth
The long-term prospects of solar energy make Solar ETFs an attractive option for investors focused on steady, sustainable growth.
11. Solar ETFs Are Part of the Green Investing Revolution
As the world shifts towards green energy, Solar exchange-traded funds represent a crucial element of the renewable energy investment landscape, empowering individuals to contribute to a sustainable future while reaping financial rewards.
Factors to Consider Before Investing in Solar ETFs
- Expense Ratio
Check the fund’s expense ratio to understand the cost of investing. Lower expense ratios are generally better for long-term investments. - Underlying Index
Understand which index the exchange-traded funds tracks and the types of companies it includes. - Geographic Exposure
Some Solar exchange-traded funds focus on specific regions, while others have a global scope. - Market Volatility
The solar energy market can be volatile due to fluctuating government policies, raw material costs, and technological disruptions. - Dividend Yield
Certain Solar exchange-traded funds offer dividends, which can be an additional source of income for investors.
How to Invest in Solar ETFs
- Choose a Brokerage Platform
Select a brokerage that offers access to the Solar exchange-traded funds you’re interested in. Popular platforms include E*TRADE, Robinhood, and TD Ameritrade. - Research and Compare ETFs
Use tools like Morningstar or Bloomberg to analyze and compare different Solar exchange-traded funds based on performance, expense ratio, and holdings. - Set Your Investment Budget
Decide how much you’re willing to invest. Remember to diversify your portfolio to mitigate risks. - Monitor Your Investments
Keep an eye on the performance of your chosen Solar exchange-traded funds and make adjustments as needed based on market trends.
The Future of Solar ETFs
The solar energy market is poised for exponential growth, driven by global efforts to combat climate change and transition to renewable energy. Solar exchange-traded funds are expected to benefit from:
- Increased Government Support: Subsidies, tax credits, and renewable energy mandates continue to boost solar adoption.
- Technological Advancements: Innovations in solar technology can lead to more efficient energy production and cost reductions.
- Corporate Commitments: Companies across industries are pledging to achieve net-zero emissions, increasing demand for solar solutions.
Conclusion
Investing in Solar Exchange Traded Funds is an excellent way to gain exposure to the burgeoning solar energy sector. Whether you’re an environmentally conscious investor or someone seeking high-growth opportunities, Solar exchange-traded funds offer a balanced approach to investing in renewable energy. By diversifying your portfolio with Solar exchange-traded funds , you can align your financial goals with the global transition toward a greener future.
At Soleos Energy, we are committed to advancing solar energy solutions worldwide. Our vision of a sustainable future aligns with the growing interest in solar investments. Whether you’re investing in Solar exchange-traded funds or exploring direct solar solutions, the potential for growth and impact is immense.
Ready to Invest in a Greener Future?
Take the first step toward sustainable investing with Solar ETFs. Whether you’re a seasoned investor or just starting, Solar ETFs offer an opportunity to grow your portfolio while supporting renewable energy initiatives. Start your journey today—research, compare, and invest in Solar ETFs to power your future with clean energy!