A couple of weeks ago, I came across what I thought was a construction oddity in one of the popular solar ETFs and noted it on my blog. Here’s an excerpt:
Solar stocks have been on a tear this year with the Guggenheim Solar ETF [TAN] rallying as much as 45%.
Obviously, that’s a very high number considering the S&P 500 is up 3%. Naturally, you start to wonder where those gains come from. Well, it turns out TAN’s current largest holding is a Chinese stock Hanergy Thin Films that has gone on a 500% run and has come under great scrutiny of late.
“Questions have been circling in recent months over Hanergy’s business. Roughly 62% of last year’s sales were made to its privately held parent company, Hanergy Holding Group, according to The Wall Street Journal. Barron’s Shuli Ren writes today that the Chinese financial press are raising more questions about stalled projects and unverified financial deals.”
Those types of questions painted a sketchy story about Hanergy. Today, the chickens came home to roost as Hanergy’s CEO failed to show at the annual meeting.
Chinese solar stock crashes $19B in 24 minutes after chairman fails to show at annual meeting https://t.co/S5eM8ZBH8z pic.twitter.com/5UJsG5x8yG
— Joseph Weisenthal (@TheStalwart) May 20, 2015
What a story. Only in bull markets, eh?  Here’s a more in-depth article from Bloomberg on Hanergy’s fall from grace.
As you can see from the chart, Hanergy’s price hung up around the highs for awhile. Actually, it hung up there for about three months. Guggenheim Solar ETF (TAN) holds Hanergy, and a big position. There product page says that they rebalance quarterly. However, there is no provision to re-balance for the sake of common sense.
Here’s a look at TAN’s top holdings coming into the day.
I think most mindful investors would agree that a highly scrutinized Chinese company has no place having a weighting nearly twice that of a First Solar (FSLR) or SolarCity (SCTY).
It’s not that Guggenheim needed to rebalance. It’s just disheartening that they didn’t take action after commonly read articles and criticisms such as those found in the Wall Street Journal or Barrons.
But it’s not just Guggenheim, Hanergy Thin Films is a large holding in other indices. I guess this is just further proof that the term ‘smart beta’ is overused and often misused.
At the end of the day, it’s an investor’s job to do the vetting and research to know what they own, as well as the costs, characteristics and policies of the funds. This is a good reminder. It’s a real hassle to continuously keep track of all of it, but there is no choice. That is, unless you aren’t concerned about your smart beta ETF losing nearly 10 percent in a day.
Thanks for reading!
Twitter: Â @ATMcharts
The author has a position in SHAK and DATAÂ at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
