Market Vectors Ardour Solar Energy (ticker KWT) began trading today. It's the second solar ETF to launch in the last few weeks, Claymore/MAC Global Solar Energy (ticker TAN) being the other.
At first blush, the two funds look pretty similar, down to the stocks they own and the proportions in which they invest in them. Here's a comparison of the fund's holdings (the Market Vectors holdings list might be a bit dated...the most recent list on their site was as of 4/11...but you get the idea)...
| Market Vectors | Claymore |
Q-Cells AG | 10.74% | 6.41% |
First Solar Inc. | 10.43% | 8.83% |
Renewable Energy Corp. ASA | 9.81% | 7.51% |
SolarWorld AG | 9.54% | 5.39% |
Suntech Power Holdings Co. Ltd. ADS | 4.90% | 6.29% |
SunPower Corp. Cl A | 4.85% | 5.00% |
JA Solar Holdings Co. Ltd. ADS | 4.80% | 5.45% |
LDK Solar Co. Ltd. ADS | 4.75% | 4.77% |
Yingli Green Energy Holding Co. Ltd. ADS | 4.55% | 5.02% |
Solaria Energia y Medio Ambiente S.A. | 4.52% | 3.71% |
Trina Solar Ltd. ADS | 4.49% | 3.35% |
Evergreen Solar Inc. | 4.43% | 2.91% |
Solon AG fuer Solartechnik | 3.90% | 2.79% |
ErSol Solar Energy AG | 3.13% | 3.07% |
Conergy AG | 2.73% | 2.17% |
CANADIAN SOLAR INC | 1.51% | 2.96% |
CHINA SUNERGY CO LTD-ADR | 0.92% | 3.42% |
SOLARFUN POWER HOLD-SPON ADR | 0.80% | 3.06% |
Solar Millennium AG | 2.71% | |
Phoenix Solar AG | 2.25% | |
ARISE Technologies Corp. | 1.53% | |
Solar-Fabrik AG | 0.69% | |
Spire Corp. | 0.59% | |
Sunways AG | 0.57% | |
Centrosolar Group AG | 0.45% | |
DayStar Technologies Inc. | 0.42% | |
MEMC ELECTRONIC MATERIALS INC | | 4.63% |
ENERGY CONVERSION DEVICES | | 3.27% |
MEYER BURGER TECHNOLOGY AG | | 2.48% |
ROTH & RAU AG | | 2.20% |
MANZ AUTOMATION AG | | 2.07% |
CHINA SUNERGY CO LTD | | 1.99% |
EMCORE CORP | | 1.68% |
All told, the funds share roughly 80% - 90% of their assets in common. Here's some other data, as of Mar. 31, 2008, that I pulled off the fund companies' websites...
| Market Vectors | Claymore |
# of stocks | 26 | 25 |
| | |
Mkt Cap: | | |
Lg Cap | 20.0% | 27.7% |
Md Cap | 42.5% | 29.7% |
Sm Cap | 37.5% | 42.7% |
| | |
Country: | | |
Germany | 36.7% | 29.9% |
China | 24.3% | 29.0% |
U.S. | 24.3% | 26.3% |
Norway | 10.0% | 7.3% |
Spain | 3.9% | 4.3% |
Again, some modest differences, but I wouldn't expect the funds to have markedly different risk/reward profiles.
So what's it going to come down to? Ordinary in a situation like this I'd say 'expense ratio, expense ratio, expense ratio'. But both funds cost the same to own--0.65%. One would naturally expect the Claymore fund to enjoy a head-start in terms of liquidity and spreads--in fact, the fund's daily trading volume has averaged around 500,000 shares since it launched on 4/15, an impressive tally considering that there are only slightly more than one million shares outstanding.
Which to choose? How about 'neither'. Generally speaking, our analysts are not especially fond of these businesses, many of which depend heavily on government subsidies and all of which are vulnerable to disruptive technologies given the low-barrier-to-entry nature of the solar business. Consequently, none of the dozen or so pure-play solar firms that our analysts cover--many of which, like First Solar, figure prominently in both of these portfolios--has managed to trench out a durable competitive advantage of any kind.
Further, given the sensitivity of these firms to the vagaries of crude oil prices, government largesse, and input costs (principally, raw polysilicone), they've been hugely volatile. In fact, after soaring in recent years, many of these names are now getting crushed. Take SunPower, which rose 251% last year, but fell 51% in this year's first quarter alone. Given these risks, we'd only invest in these firms with a healthy margin of safety--they'd have to be trading at least 20% below our fair value estimates to get us interested.
We're nowhere near that threshold right now. For instance, the dozen of so stocks in the Claymore portfolio that we cover were recently trading at a hefty 30% premium to our estimate of their aggregate fair value. MEMC Electronic, First Solar, JA Solar, and Yingli Green Energy were all trading well above our estimates of those firms' intrinsic worth.
And it's not like we're being prudes in forecasting these businesses' future growth. For instance, we're projecting 41% annualized top-line growth for First Solar from 2007 - 2014. But the question remains--what price growth? The answer for First Solar was recently '147 times trailing earnings'. Viewed against the backdrop of numerous solar-related IPOs in recent months, which is rarely an encouraging portent, solar has 'froth' written all over it at the moment.
We'd stand on the sidelines until prices get more reasonable.
