Despite concerns that the current administration is putting the green agenda on the back burner, solar exchange traded funds have brightened on the global outlook for clean energy.
The Guggenheim Solar ETF (NYSEArca: TAN), the largest exchange traded fund dedicated to solar stocks, surged 32.7% year-to-date.
A number of bullish factors have supported the rebound in solar stocks, including continued strong overall world demand for solar, especially from India, Latin America, the Middle East and Southeast Asia; greater demand for solar power due to increasingly competitive price of solar, compared to alternatives as countries seek to meet carbon-reduction targets under the Paris climate agreement; and continued low valuations, relative to pricier U.S. large-caps, according to MAC Solar Index, the index provider for the underlying benchmark of TAN.
On a technical basis, solar stocks still look cheap, compared to the broader market, even after the recent rally in the solar market. The MAC Solar Index shows a median forward price-to-earning of 15.3, compared to the forward P/E of 19.0 for the S&P 500. Furthermore, the median price-to-book of 1.18 for those in the MAC Solar Index is much lower than the 3.15 P/B for the S&P 500.
On the other hand, a number of bearish factors still persist, including ongoing downward pressure on solar pricing and panel oversupply due to a hangover from solar install spikes in China and the U.S.; uncertainty over U.S. clean energy policy and global climate change initiatives under the new Donald Trump administration; concern for U.S. residential solar demand due to a shift in purchase/loans from leases and cutbacks in net metering; and trade disputes that have triggered tariffs and various market dislocations.
Related: Don’t Get Burned With Solar ETFs
Concerning the ongoing political uncertainty over green policy changes, MAC Solar Index argued that the solar market has more or less absorbed the negative moves that President Trump took earlier this year, such as exiting the Paris climate agreement and moving to remove the EPA’s Clean Power Plan. Some have even argued that the President could help the solar industry ahead as Trump has hinted at potential solar installations along the planned Mexico border wall.
While the U.S. has exited from the Paris agreement, the world goes on. For instance, German Chancellor Merkel, French President Macron, and Chinese President Xi Jinping all recommitted to the Paris agreement after Trump’s exit announcement.
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