As we saw last week, the battered fund TAN has been able to perform strongly on days when there is positive news for the sector.
Last Thursday when the markets were rallying, good news from
( SPWRA) sent the stock up 22% and pushed TAN to gains of 8% on the day.
News from SPWRA was able to influence the fund's performance even though it accounts for only 3.6% of TAN's net assets.
reports on Thursday and with 5.1% of the fund's assets, it will also be capable of moving TAN, assuming the markets are not in a broader selling mode. GSTP's report will also come on the heels of
report on Wednesday. CSIQ receives only a 2.4% allocation in TAN, but news from the company could have effect the sector and the TAN fund beyond what is diminutive allocation would suggest is possible.
Based on recent history, STP appears in a good position to beat earnings estimates. Analysts have under estimated STP's earnings by an average of 100% over the past four quarters. If CSIQ gets the ball rolling tomorrow, TAN could be in for a nice run this week, assuming the broader market cooperates.
Beyond a short-term earnings play, TAN is still risky as a long-term investment.
Continued budget cuts in Europe and elsewhere means that fewer subsidies will be available for alternative energy. Solar is improving, but projects still often require subsidization in order to be viable.
The weakened condition of the euro against other world currencies will also dig into the profits of European solar companies and those that are producing for export to Europe. Euro zone countries represent about 30% of TAN, while 28.6% of the fund is devoted to China and 28.2% is devoted to companies from the United States.
TAN was largely immune to the rally that started in March 2009 and shares topped in June 2009. When things turned volatile in early May of this year, TAN quickly broke below a very long-term level of support.
This history suggests that as volatility continues to be the norm in the markets, the downside risk remains greater than the upside potential.
A sustained rally will not happen in solar as long as pessimism continues to weigh on market sentiment, especially since this concern remains centered on Europe. However, if the fundamentals of the industry improve while short-term concerns pressure the stocks, TAN may develop into a value play later this year.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management was not long on any of the funds mentioned.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.