Solar ETF Is Enjoying a Bright Outlook | ETF Trends

Solar stocks and sector-related ETFs have shined over the past year and the outlook continues to look bright.

The Invesco Solar ETF (NYSEArca: TAN) rose 5.3% so far in 2020 after advancing 58.3% over the past year.

The outlook for the solar industry remains favorable as strong fundamentals could continue to back the sector, MarketWatch reports.

“Global solar installations will continue double-digit growth rates into the new decade,” IHS Markit said in a recent note. “New annual installations in 2020 will reach 142 gigawatts (GW), a 14 % rise over the previous year.”

Emerging markets are also taking a cleaner approach as they try to cut down on pollution. For example, China, the world’s second-largest economy, suffers from heavy pollution after it quickly industrialized its economy, but it has also heavily adapted to solar as a means to combat the rising pollution and shift away from dirty coal.

“Solar demand in 2020 will be lower than historic installation peaks of 50 GW in 2017,” IHS Markit added. “Demand in China is in a transitional phase as the market moves towards solar being unsubsidized and competing with other forms of generation and there is some lingering uncertainty while awaiting the release of the new 14th Five-Year Plan to be announced next year.”

The Solar ETF could be well positioned to capitalize on this shift to cleaner energy. Specifically, TAN’s underlying portfolio includes a large 23.2% tilt toward Chinese companies, along with a hefty 46.0% position in U.S. names.

In the U.S., increased corporate adoption of solar panels and an increased number of states pushing utilities to go green could also support the case for the solar industry outlook.

In the U.S., “installations are expected to grow 20% in 2020, consolidating the United States’ position as the world’s second largest market. California, Texas, Florida, North Carolina and New York will be key drivers of U.S. demand growth over the next five years,” according to Markit.

For more information on the renewables space, visit our renewable energy category.