Posted on 16 June 2012.
A solar ETF is an Exchange Traded Fund (ETF) that invests in stocks of companies that do business in the solar energy industry. A solar ETF can include companies that are involved in many different facets of the solar energy industry, from raw materials manufacturers and suppliers, to solar panel and equipment manufacturers and suppliers, to solar installation companies. While many investors bought a solar ETF in the early years of solar energy to support the burgeoning solar energy industry driven by a sense of social conscious, these days the solar energy industry is a fast growing multi-billion dollar industry with a track record of both profits and losses that investors can analyze to assess the value of a solar ETF.
The solar energy industry has proven to be one of the most volatile of all industries over the past two decades. This is due to the fact that the popularity of solar energy is closely tied to the constantly changing price of crude oil and other energy sources and the fact that fierce competition and constant technological changes within the solar energy business have made it difficult for some solar energy related businesses to adapt and survive. Due to the volatility and high business failure rate, investing in the solar energy industry via a solar ETF makes a lot of sense verses trying to pick individual solar energy stocks and hoping that the stocks picked are winners. A solar energy ETF spreads the risk of any one solar company failure across a number of solar energy company stocks and exposes an investor to a broad range of solar energy technologies, so that the failure of a solar energy company or a change in technological preference will not wipe out one’s investment in the solar energy industry.
There two most widely followed solar ETFs available are:
Investing in a solar ETF has been a particularly volatile proposition over the past couple of years. Solar ETFs were the worst performing ETFs of 2011 due to falling oil prices, reduced government subsidies for solar energy, and increased solar industry competition which hurt the price of solar energy stocks. Since solar energy stocks are currently at multi-year lows, investing in a solar ETF may be appealing to value oriented investors that like to buy when stocks are cheap.
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