Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some solar-energy companies to your portfolio, 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 Market Vectors ETF's expense ratio -- its annual fee -- is 0.65%. The fund is very small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed reasonably well, but it's also very young, with just a few years on the books. It underperformed the S&P 500 in 2008 and 2010, though it beat it substantially in 2007 and 2009. 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.
Why solar?
Interest in alternative energies has been around for a long time, but it seems to finally be gaining some traction. The solar energy industry has taken a beating lately, but that just leaves some investors finding it more attractive than it was before.
Relatively few solar energy-related companies performed strongly over the past year.
Power-One (NASDAQ: PWER), despite being in the beleaguered solar power industry, has nevertheless managed to grow by 12% over the past year. It looks like a bargain to some, with improved market share, financial results, and demand. It's also expanding globally, and is poised to benefit as the industry heats up. It's also worth noting that the company makes inverters needed in the industry, and not the solar panels that many others make.
Many solar-related companies didn't do as well last year, but could see their fortunes change in the coming years. GT Advanced Technologies (NASDAQ: GTAT) plunged 59%, and the company has announced a massive 25% downsizing of its workforce as it reorganizes. Its emerging HiCz technology is promising, as it may make solar even more efficient and cost-effective. To some, the long-term prospects for GT Advanced are solid, but the company itself has lowered near-term expectations.
MEMC Electronic Materials (SUNEQ), the second-largest U.S. polysilicon maker, shed some 19%, but that's progress, considering that it was down by more than 50% earlier in the year. The company reported very strong second-quarter results and then moved into the black in the third quarter, with some insiders making big buys. The company is enjoying an uptick in solar project sales. It recently made a shareholder-friendly move, lowering director terms to one year from three.
First Solar (FSLR -1.64%) dropped 11%, but that, too, is better than an approximate halving earlier in the year. It has been facing tough competition, supply and demand issues, threatened government subsidies, and ever-changing technologies. Recent third-quarter results weren't pretty, and the stock is heavily shorted. Bulls have high hopes for its projects in emerging markets such as India, and note that it's one of the lowest-cost installers.
The big picture
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.
