Solar ETFs Fall, Crimping Big Annual Gains

The two solar ETFs on the market declined last month, reducing their outsized returns over 12 months.
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NEW YORK (TheStreet) -- The two solar-energy exchange traded funds on the market fell 11% last month, earning spots on the 10 worst-performing ETF list.

The

Claymore/MAC Global Solar Energy Index ETF

(TAN) - Get Report

rose 45% over one year, helped by higher weightings of German and Chinese stocks than American companies. Top holdings include

First Solar

(FSLR) - Get Report

,

Trina Solar

(TSL)

and

MEMC Electronic Materials

(WFR)

.

The

Market Vectors -- Solar Energy ETF

(KWT)

, tracking the Ardour Solar Energy Index, climbed 26% during the past 12 months. The index weights U.S. solar energy-related companies at 32%, with China at 25% and Germany at 24%. On top of 10% allocations to MEMC and First Solar, the ETF is even more closely tied to the fortunes of

Renewable Energy Corp.

First Solar's stock took a hit in February after Chairman Michael Ahearn dumped 1.3 million shares, or 40% of his holdings, for $142 million in a move that suggests a lack of faith. Part of the chairman's job is to lobby governments for subsidies needed to make solar power competitive.

With Germany potentially cutting photovoltaic-panel subsidies, demand may slacken. President Barack Obama recently unveiled his "Home Star" program to promote energy efficiency using $3,000 rebates totaling $6 billion at Savannah Technical College, a training center for solar-panel installation. After being squeezed by Congress, it remains to be seen if the new program will go beyond new windows, doors and insulation to include new rebates for solar panels.

Another threat to the pure players in solar energy comes from

Mitsubishi Electric

, the huge Japanese consumer-electronics company, which plans to triple solar-cell production in the next two years. This is to meet domestic Japanese demand stoked by the government's subsidies intended to encourage households to convert to clean energy over the next decade.

Another solar-panel maker,

SolarWorld

(SRWRF)

, is trading at a 52-week low. The German company struck a deal with the Emirate of Qatar to purify up to 3,600 tons of silicon in an energy-intensive process in a location where natural gas is especially cheap. So, even if cheap natural-gas-based electric generation undercuts the competitiveness of building massive solar arrays, it can still be used to bring down the cost of making solar panels in the near future.

At the same time, natural-gas prices in the U.S. remain relatively low, and two funds tracking this commodity leaked more value in February. While maintaining our lowest possible "sell" rating of E-minus, the

United States Natural Gas Fund LP

(UNG) - Get Report

lost almost 7% in the month and 50% in a year. Likewise, the

iPath Dow Jones-UBS Natural Gas Subindex Total Return ETN

(GAZ) - Get Report

dropped 6% in February and 44% in 12 months.

For the best rated exchange-traded funds, check out our

Top Rated ETFs

page.

-- Reported by Kevin Baker in Jupiter, Fla.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.