The intersection of Capitol Hill and Wall Street can often be a dangerous one for investors and that may again prove to be the case for those that have enjoyed high-flying solar ETFs this year.
After it looked like solar and alternative energy ETFs were left for dead, the funds have surged this year. The Guggenheim Solar ETF (NYSEArca: TAN), the largest solar ETF by assets, is the top-performing non-leveraged ETF this year. The rival Market Vectors Solar Energy ETF (NYSEArca: KWT) is the third-best non-leveraged ETF year-to-date. The two are up an average of almost 33%. [Solar ETF Rallies 50% in a Month]
Some political maneuvering on Capitol Hill could lead to some downside for TAN, KWT and their holdings. Here is why: Some senators have been pushing legislation that would allow solar companies to convert into master limited partnerships, or MLPs, one of income investors’ most prized asset classes over the past several years. [MLP ETFs Vulnerable to Rising Rates]
That legislation is now seen as vulnerable as Sen. Chris Coons (D-DE), one of the bill’s biggest supporters, earned a promotion to the Senate Appropriations Committee from the Senate Energy and Natural Resources Committee, reports Ben Levisohn for Barron’s.
“We remind our readers that Sen. Coons is among the major sponsors of the MLP for renewables bill. This just made it a lot harder for him to push; while we strongly contended from the beginning in prior published research that this bill was unlikely to pass, our convictions here have grown with this piece of information (we will remind our readers that the introduction of this bill earlier this month cause quite a bit of upside in all solar stocks,” said Axiom Capital’s Gordon Johnson in a note obtained by Barron’s.
Johnson identified First Solar (NasdaqGS: FLSR) and SunPower (NasdaqGS: SPWR) as solar names that have run up, in part, because of the MLP speculation. Those two stocks combine for about 13.4% of TAN’s weight.
Income investors that were hoping for solar stocks to become MLPs can find solace in TAN. While solar stocks are not known for being dividend-payers, TAN features a juicy yield due to an effective securities lending practice, as Index Universe reported last month.
Guggenheim Solar ETF
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.