ETF Research and Analysis
by Paul Justice, CFASuitability
Given its extremely narrow theme focus, this thematic fund should be treated as a satellite specialty holding to complement a diversified portfolio, albeit one that could be held for several consecutive years. Investors buying this fund likely hold most of the following theses regarding the solar industry: Carbon dioxide emissions must be curbed while our electricity supply is expanded, developed countries will pursue vigorously energy independence, solar manufacturing costs will continue declining as incremental investments are made, and government subsidies will remain large and persist long enough for solar technologies to reach "grid parity" on their own. Read more
Given its extremely narrow theme focus, this thematic fund should be treated as a satellite specialty holding to complement a diversified portfolio, albeit one that could be held for several consecutive years. Investors buying this fund likely hold most of the following theses regarding the solar industry: Carbon dioxide emissions must be curbed while our electricity supply is expanded, developed countries will pursue vigorously energy independence, solar manufacturing costs will continue declining as incremental investments are made, and government subsidies will remain large and persist long enough for solar technologies to reach "grid parity" on their own. Read more
Bull Case
Governmental policies and economic incentives have bolstered the near-term viability of solar generation.
Gaining exposure to several of this ETF's small European holdings is difficult for U.S.-based investors. TAN provides a low-cost and accessible means of investing in solar power globally.
The perceived need for energy independence, carbon dioxide emission reductions, and unsustainably high fossil fuel prices have heightened the demand for alternatives like solar power. Read more
Bear Case
Several other alternative-energy options, such as wind or geothermal, may prove more cost effective than solar. Nuclear development is also on the table.
As electricity prices fall in tandem with natural gas prices, alternative energy projects become less economical. Utilities have very little incentive to use solar technologies if natural gas is below $7 per million cubic feet.
Governmental subsidies have a way of disappearing at inopportune times. Until solar costs come down substantially, this investment will be subject to political whims. Read more
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