Up nearly 41% year-to-date, the Invesco Solar ETF (NYSEARCA: TAN) is one of this year’s best-performing non-leveraged exchange traded funds. And give TAN some credit. The solar ETF managed to trade higher in May even as broader equity benchmarks swooned, but some analysts see tariff trouble lurking for some of the fund’s components.
TAN, which is nearly 12 years old, follows the MAC Global Solar Energy Index. That index “is comprised of companies in the solar energy industry. The index is computed using the net return, which withholds applicable taxes for non-resident investors,” according to Invesco.
“Specifically, Credit Suisse analysts said Enphase Energy Inc (NASDAQ:ENPH) and SunPower Corporation (NASDAQ:SPWR) would be most impacted by the tariffs,” reports Schaeffer’s Investment Research.
Those two stocks combine for over 11% of TAN’s weight.
TAN Tariff Talk
TAN and its components can be volatile investments and the solar industry has had its bouts of volatility and struggles in the past. The tariffs pinched the solar industry, creating job losses, but state initiatives, including California’s push to require all new homes built in 2020 and beyond to include solar panels, are bolstering the solar industry.
In a note out Monday, Credit Suisse noted “that all of ENPH’s microinverter shipments will come from Mexico by the end of this year, and SPWR’s distributed generation module business has heavy Mexico exposure,” said Schaeffer’s. “According to Suisse’s estimates, every 5% increase in tariffs on imports could cut into Enphase’s earnings per share by up to 20%, and SunPower’s adjusted EBITDA by 3.5%. As a result, the companies could move their respective businesses out of Mexico in the coming years.”
The ALPS Clean Energy ETF (Cboe: ACES) is another alternative energy ETF to consider. The ALPS Clean Energy ETF tries to reflect the performance of the CIBC Atlas Clean Energy Index, which is comprised of U.S. and Canadian companies involved in the clean energy sector including renewables and clean technology. ACES provides exposure to multiple clean energy themes.
The ETF’s components provide the products and services that enable the evolution of a more sustainable energy sector. The green energy companies are engaged in renewable energy sources, including solar power, wind power, hydroelectricity, geothermal energy, biomass, biofuels, and tidal/wave energy; clean technologies, including electric vehicles, energy storage, lithium, fuel cell, LED, smart grid, and energy efficiency technologies; and other emerging clean energy activities and technologies.
Enphase and SunPower combine for just under 5% of ACES.
For more information on the renewables space, visit our renewable energy category.