TAN has been boosted this year by a familiar catalyst: Elon Musk’s SolarCity (NasdaqGM: SCTY). Up more than 700% since its December 2012 initial public offering, SolarCity was up 13% this year heading into Friday’s session. The stock is now TAN’s second-largest holding at a weight of almost 6.5%, according to issuer data.
SolarCity “is an investor favorite with Musk also serving as the Chairman and with its focus on the fastest growing residential market. Goldman Sachs just last week added it to its conviction buy list and is also a top pick of other brokerage firms,” said Sabogal.
Still, some caution is warranted with SolarCIty as Sabogal notes, saying “even though it is growing at a fast pace much of that is fully priced in and it needs to continue proving itself by having earnings eventually support the high expectations.” [Solar ETFs Look for 2014 Sequel]
Caution could be the order of the day in the near-term for TAN and solar stocks given the sector’s penchant for out-sized moves in either direction. TAN’s standard deviation is 52.1%, or nearly quadruple that of the MSCI World Index, according to Guggenheim data.
“The sector can definitely continue to outperform but to some degree it is still hostage to overall market performance. A selloff in the overall market will have momentum traders fleeing the space as these high beta names can suffer a painful pullback of their own…high beta goes in both directions,” said Sabogal.