The recent coronavirus-induced tumble suffered by equities notwithstanding, the Invesco Solar ETF (NYSEArca: TAN) remains a catalyst-rich story for tactical investors to consider in 2020.
TAN seeks to track the investment results of the MAC Global Solar Energy Index, which is designed to provide exposure to companies listed on exchanges in developed markets that derive a significant amount of their revenues from the following business segments of the solar industry: solar power equipment producers including ancillary or enabling products.
Increasing demand for PV inverters is a potential driver of TAN upside this year.
“IHS Markit forecasts that global demand for replacement inverters will grow by almost 40% to reach 8.7 GW in 2020. A large and growing installed base of aging PV installations is driving demand for replacement PV inverters,” notes IHS Markit. “Demand for replacement PV inverters comes from customers who own old inverters which are beginning to underperform or fail or can no longer easily be serviced with replacement models or spare parts. Demand is also coming from customers who own relatively young PV inverters that are underperforming due to either poor installation, system design, or quality issues.”
Taking On TAN Talk
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.
Asia is the second largest region for replacement inverters due to large PV installations in China historically and continued massive recent growth in China which will continue to fuel demand in the region,” according to IHS Markit. “Demand for replacement PV inverters is expected to come primarily from utility-scale (>5 MW) installations. Demand will also be driven by residential and commercial installations in Japan which had early growth in solar and now has the largest installed base of residential installations over 5 years old in the world.”
Roughly half of TAN’s 22 components are considered mid- and small-cap growth stocks, meaning the fund is ideally positioned to capitalize on equity market rally when the coronavirus situation is finally controlled.
“Evolving technical regulations and import tariffs continue to make the United States a challenging environment for suppliers to keep investing in next-generation products and hence, may also cause suppliers to exit the market,” said IHS Markit. “However. despite some of these challenges, it remains a highly lucrative market as suppliers fight to capture growing new installations and as customers seek ways to replace a growing installed base of aging systems, particularly in the utility-scale sector.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.