From the May 2008 issue of Research Magazine • Subscribe!

May 1, 2008

Sunny Days Ahead?

With oil prices still breaking all-time highs, investing in alternative energy is a very hot theme. And recently, two exchange-traded funds (ETFs) that track solar stocks were introduced.

Van Eck Global launched the Solar Energy ETF, (KWT). The fund has an annual expense ratio of 0.65 percent and will track the Ardour Solar Energy Index. KWT is comprised of 27 companies, from 6 countries. The country weighting is the following: Germany, 36.7 percent; U.S., 24.3 percent; China, 24.3 percent; Norway, 10 percent; Spain, 3.9 percent; and Canada, 0.9 percent. The top holdings in KWT are First Solar, Q-Cells, Renewable Energy and Solarworld.

Also debuting was the Claymore/MAC Global Solar Energy ETF (TAN). The fund looks strikingly similar to KWT. It charges the same expense ratio, it holds almost the same amount of stocks (25), and the country representation is similar.

The MAC Global Solar Energy Index gives full weightings to "pure-play" solar companies that derive at least two-thirds of their total revenue from the solar industry and a reduced weight to "medium-play" solar companies that derive between about one-third and two-thirds of their total revenue from the solar industry.

There are only about 200 publicly traded companies that have interests in solar energy worldwide, so the selection pool is somewhat limited. Currently, most of the components of both ETFs are considered pure plays.

Interest in solar investments has been on the rise. According to Thomson Reuters compiled data, venture capital investments in solar companies during the first quarter grew by 38 percent to just over $131 million.

Investors are betting that power utilities and other industry sectors will shift away from traditional energy to renewable sources like hydropower (water), solar, wind, geothermal, and biomass.

Some analysts still say the alternative energy sector is risky. The cost of building power plants that use solar-thermal energy and other infrastructure is substantial, while no guarantees those huge investments will pay off.

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