Exchange traded funds tracking solar energy stocks such as First Solar (NasdaqGS: FSLR) rallied 10% on Thursday with volume and performance picking up in the ETFs following a disastrous 2011.
Shares of Guggenheim Solar ETF (NYSEArca: TAN) and Market Vectors Solar Energy (NYSEArca: KWT) are both trading below $6 but have shown impressive percentage gains so far this year. [Solar ETFs: Brighter Days or Burning Out?]
For example, the solar ETFs are up more than 50% year to date with Thursday’s big gains. The funds, however, lost more than 60% in 2011 with several companies in the solar-energy sector forced into bankruptcy due in part to the Eurozone debt crisis.
“By now almost everybody knows the start, stop, start again history of solar. In 2011, solar endured one of the worst years of any sector ever, crashing akin to technology shares of 2000-2002,” writes Kirk Spano at MarketWatch.
“Most see the huge sell-off in solar investments in 2011 as a reason to stay away from solar investments today. In my opinion, smart investors are using the crash-level prices in solar investments to establish long-term positions that could be opportunities of a lifetime,” he predicted.
Of course, long-term investors in solar ETFs should be prepared for volatility, and the industry is heavily dependent on government subsidies.
“Given its extremely narrow focus, this thematic fund should be treated as a satellite specialty holding to complement a diversified portfolio, albeit one that may be held for several consecutive years,” Morningstar’s Abraham Bailin writes in an analyst report on Guggenheim Solar ETF.
“Motivations for investors holding this fund include beliefs that carbon dioxide emissions must be curbed in concert with future electricity supply expansion, that developed nations will utilize solar in the pursuit of energy independence because of its decreasing manufacturing costs, and that government subsidies will remain large and persist long enough for solar technologies to become cost-competitive with traditional grid power,” he added.
Shares Guggenheim Solar ETF