Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the solar energy industry to perform well over the long run, once it recovers from its current slump, the Market Vectors Solar Energy ETF (NYSE: KWT ) 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 reasonable 0.65%.
This ETF has performed... well, poorly. But it's also very young, as is the industry itself, and has been clobbered by growing pains and bankruptcies as players jockey for position and deal with supply and demand imbalances. 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 37%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Just about none of this ETF's components did much to boost its performance over the past year. But it's all relative, of course. GT Advanced Technologies (Nasdaq: GTAT ) , for example, shed 18% over the past year, but that still brought up the ETF's average. The company was hurt by European tariff cuts, tight credit markets, and falling polysilicon prices.
Other companies really killed the ETF's returns last year, but could have a positive effect in the years to come. Power-One (Nasdaq: PWER ) fell 65%, but the fact that solar companies may be buying its inverters to help lower installation costs is promising. China's Yingli Green Energy (NYSE: YGE ) and Suntech Power (NYSE: STP ) , down 66% and 74%, respectively, are poised as major players to eventually do quite well when global demand picks up, now that prices have been falling.
ReneSola (NYSE: SOL ) , chopped by 82% due to falling prices, nevertheless looks promising in the long run. Based in China like many others, it may be hurt if the U.S. imposes significant tariffs on foreign solar concerns, but there's still plenty of demand to be met in China and elsewhere for this cost-effective company.
The big picture
Demand for energy isn't going away anytime soon, and neither is sunshine. 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 about the best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these "10 Stocks for Your Retirement Portfolio."
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