Make Money in Solar Energy -- the Easy Way

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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the now-struggling solar energy industry to prosper over the long run and you want to buy into it while prices are low, the Guggenheim Solar ETF (NYS: TAN) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The solar ETF's expense ratio -- its annual fee -- is a relatively low 0.70%. That's higher than that of many ETFs, but also considerably lower than the typical stock mutual fund. The ETF is fairly small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has performed rather poorly so far, but it's also very young, with just a few years on the books. The solar energy industry has had a rough few years, and thus its component companies have, as well. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a turnover rate of 38%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Solar energy companies have had a tough time over the past year, but many could see their fortunes change in the coming years. China-based JA Solar (NAS: JASO) , down a whopping 75% over the past year, recently reported preliminary results that topped expectations, offering a green shoot of hope to investors. JA Solar's balance sheet is healthier than some peers', too. Fellow China concern ReneSola (NYS: SOL) , down 74%, doesn't have a pretty balance sheet, but may benefit from signs of growth in solar installations in Europe and China. (It's far from a sure thing, though.)

Power-One (NAS: PWER) , down 50%, is, like many of its peers, looking like a bargain with its low P/E ratio and other measures. But my colleague Rich Smith thinks it's a value trap, as it isn't generating much free cash flow. Bulls are optimistic about the company's new inverters, though, as they may be incorporated in solar modules, bringing the cost of modules down. GT Advanced Technologies (NAS: GTAT) , down 28%, sports an appealing big backlog of orders, though as with its peers, many worry about falling prices due to oversupply, and slowdowns in orders from Europe due to financial crises there.

The big picture
Demand for solar energy is likely to increase over time, but it won't be in a straight line. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Learn aboutthe 5 ETFs That Could Soar in 2012. And if you're looking for some great investments beyond ETFs, consider these12 Dividend Stocks for 2012.

At the time this article was published Longtime Fool contributorSelena Maranjian, whom you canfollow on Twitter here, holds no position in any company mentioned.Click hereto see her holdings and a short bio. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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