China Exposure Could Lift Solar ETFs

NEW YORK (TheStreet) -- Although alternative energy funds have been undeniably unstable over the course of the year, let's take a quick look under the hood of the Claymore/MAC Global Solar Index(TAN) and Market Vectors Solar Energy(KWT), to gather our thoughts on the sector.

Based on year to date performances, the solar industry looks to be faring poorly in the market's turbulence. After peaking in early to mid-January, both TAN and KWT have both seen a dramatic decline throughout 2010, incurring respective losses of 26.7% and 25.5%.

However, all hope for the floundering sector is not necessarily lost. According to a recent report released by the International Energy Agency (IEA), China's energy-dependence has reached global proportions. The study concludes China has recently achieved the status of the world's largest energy consumer, and has revamped its efforts looking into cleaner, more efficient energy sources.

Consumption statistics are staggering to say the least. In 2009, China consumed 2.252 billion tons of energy (and relevant energy equivalents), surpassing the consumption of the U.S. by a solid 4%.

Much of this energy demand was driven by exponential growth in the respective industrial and infrastructure sectors. And as a growing power, the nation's craving for energy is likely to expand.

In response to heightened CO2 gas emissions, China has agreed to plans of emission reduction, especially through the establishment of greener energy alternatives.

China plans to devote $738 billion over the next decade to cleaner energy sources, and has already made substantial progress. Nearly one-third of nuclear power plants currently under construction are Chinese, and China built more wind turbines last year than any other nation.

Most importantly, the green Chinese movement has led to more than $11 billion in capital for renewable developments in the second quarter alone, topping the US. and EU, combined.

Relating this back to the solar sector, China's efforts in the energy management department speak well for ETFs designed to track the global solar energy industry, given their high exposure to Chinese companies. TAN devotes nearly 30% of its portfolio to Chinese solar corporations such as Yingli Green(YGE) Energy and LDK Solar(LDK).

In comparing TAN and KWT, one should note that their top holdings are highly similar, but the funds extensively vary by volume.

In terms of holding composition, the two products are extremely similar. TAN's top five holdings include First Solar(FSLR), 9.93% of assets; Meyer Burger(MBTN), 5.31%; Trina Solar, 5.22%; Suntech Powerholdings(STP), 4.94%; and MEMC Electronic Materials(WFR), 4.89%.