Trump's Victory Casts A Shadow Over Solar ETFs

Solar ETFs - Guggenheim Solar ETF (LON:TAN) and VanEck Vectors Solar Energy ETF (NYSE:XLE) KWT went out of investors’ favor and dropped 9.2% and 7.6%, respectively compared with 3.3% gain registered by SPDR S&P 500 ETF (NYSE:SPY) (AX:SPY) in the last 30 days (as of December 1, 2016).

Donald Trump’s victory in the U.S. has clouded the future of these ETFs. This is because the President-elect plans to bring back the traditional energy businesses of coal, oil, and gas and has expressed skepticism about global climate change in his campaign. Although this spells good news for VanEck Vectors Coal ETF KOL that tracks the global coal industry, it has dimmed the future of solar ETFs (read: ETFs & Stocks That Topped or Flopped After Trump Won).

Trump has promised to cancel the landmark Paris deal and stimulate coal production once he takes office in January. Not only has Trump called climate change a hoax created by China, he has pledged to remove Obama’s Clean Power Plan.
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Silver Lining
However, all is not lost for solar ETFs. Oil price is also likely to be a major influence. High price of oil could give a boost to the solar energy sector. With the OPEC deal finally deciding on output cut and oil hitting the $50 per barrel mark, this could bode well for the solar energy sector (read: OPEC Finally Cuts Output: Energy Stocks & ETFs Up 10% or More)

Meanwhile, in the long run, it is believed that Trump will have limited influence on the U.S. utility industry’s push toward renewable energy. Several companies including NextEra Energy Inc (NYSE:NEE). and Duke Energy Corp (NYSE:DUK). have invested billions in order to generate electricity with cleaner and more economic alternatives.

For investors seeking to play this trend in the ETF form, the following solar ETFs could be interesting picks.

TAN: This ETF tracks the MAC Global Solar Energy Index. Holding 27 stocks in the basket, the fund is concentrated in the top three firms that combined to make up for around 22% share. Other firms hold no more than 6.5% of the assets. American firms dominate the fund’s portfolio with about 50.4% share, followed by Hong Kong (19.2%) and China (18.6%). The product has amassed $185.8 million in its asset base and trades in volume of around 105,000 shares a day. It charges investors 71 bps in fees per year. It has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook (see: all the Alternative Energy ETFs here).

KWT: This fund manages $10.6 million in its asset base and provides global exposure to 29 solar stocks by tracking the MVIS Global Solar Energy Index. In terms of country exposure, China and U.S. account for the top two countries with 28.1% and 27% allocation, respectively, followed by Taiwan (19%). The top 10 securities hold almost 60% of the fund’s assets. The product has an expense ratio of 0.65% and sees paltry volume of about 1,000 shares a day.

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SPDR-SP 500 TR (SPY): ETF Research Reports

GUGG-SOLAR (TAN): ETF Research Reports

VANECK-SOLR EGY (KWT): ETF Research Reports

VANECK-COAL (KOL): ETF Research Reports

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Zacks Investment Research