Solar ETFs Could See Clouds Later This Year | ETF Trends

Solar exchange traded funds were the best performers last year and could continue their streak over the first half of the year, but the industry faces some obstacles in the later half of 2014.

The Guggenheim Solar ETF (NYSEArca: TAN) jumped 112.5% over the past year while the Market Vectors Solar Energy ETF (NYSEArca: KWT) rose 86.1%.

J.P. Morgan predicts that the industry will continue to strengthen on sound fundamentals, at least for the first half of the year, reports Shuli Ren for Barron’s. [Solar ETFs Look for 2014 Sequel]

“2014 should be a good year for the solar industry owing to strong demand for PV solar capacity in China and Japan, capacity constraints across tier 1 module manufacturers, stabilizing polysilicon and module prices, and improving business models,” J.P. Morgan analysts Paul Coster, Mark Strouse, and Paul J Chung said in the article. “We expect 2014 to start out strong, with PV suppliers’ gross margins trending into the 15-20% range, EBIT margins ticking up into single digits, and improving balance sheet health.”

The analysts, though, warn against potential hurdles in the second half of the year.

“Risks escalate in 2H14 when new capacity could enter the market, Japanese deployments peak, and potentially disruptive next-gen technology arrives,” J.P. Morgan analysts added.