First Solar is expected to report EPS of $0.92 on revenue of $584 million. Last quarter the company posted EPS of $1.33. Chinese producer Canadian Solar Inc. (NASDAQ: CSIQ) today named a new CFO and also reported that its gross margins for the second quarter would be at the lower end of its outlook. LDK Solar Inc. (NYSE: LDK) and Trina Solar Ltd. (NYSE: TSL) have also recently replaced CFOs as a variety of accounting issues have begun to plague Chinese solar makers.

Solar producers make up a significant portion of the investments in several clean energy ETFs. These funds include the Guggenheim Solar ETF (NYSE: TAN), the iShares S&P Global Clean Energy Index (NYSE: ICLN), the PowerShares WilderHill Clean Energy ETF (NYSE: PBW), the PowerShares Global Clean Energy ETF (NYSE: PBD), the PowerShares Cleantech Portfolio (NYSE: PZD), and the Market Vectors Solar Energy ETF (NYSE: KWT).

The Guggenheim Solar ETF (NYSE: TAN) holds about $150 million in total assets, and First Solar is its largest holding, at more than 19%. Trina and SunPower Corp. account for another 9% of holdings. Year to date the best performers in the fund have been GT Solar International, Inc. and GCL-Poly Energy Holdings Ltd., neither of which makes modules. First Solar has lost more than -4.5% of its value so far this year, while GT Solar is up more than 66% and GCL-Poly is up more than 52%. LDK Solar (-28.36%), Canadian (-22.28%), and Trina (-16.14%) indicate the direction of Chinese solar makers’ shares. So far this year the fund is down -6.3%.

The iShares S&P Global Clean Energy Index (NYSE: ICLN) holds total assets of $67 million, but unlike TAN the fund invests in non-solar as well as solar stocks. The fund’s three largest holdings are First Solar, GT Solar, and Trina. Year to date the fund is off nearly -2%. Nearly a third of the fund’s holdings are in solar-related stocks.

The PowerShares WilderHill Clean Energy ETF (NYSE: PBW) holds total assets of about $415 million. The fund recently replaced First Solar as its top holding with Emcore Corp., a maker of solar cells and concentrating solar PV systems. Like ICLN, this fund is diversified throughout the clean energy sector, but year-to-date results have been poor, down -15.5%.

The PowerShares Global Clean Energy ETF (NYSE: PBD) is an equal weighted fund that holds about $180 million in assets among nearly 100 stocks, none of which accounts for more than 2% of holdings. The fund is down more than -5% so far this year.

The PowerShares Cleantech Portfolio (NYSE: PZD) holds about $148 million in total assets. The fund is styled as a mid-cap growth fund and includes 71 stocks spread across the spectrum of clean energy development. First Solar is the only solar PV maker in its top 20 holdings. Year to date the fund has returned 6.7%.

The Market Vectors Solar Energy ETF (NYSE: KWT) is the newest and smallest of these clean energy funds. Assets total $25 million, and like TAN, the fund is narrowly focused on the solar sector. First Solar is the funds top holding at nearly 11%, followed by GT Solar. Trina and Suntech are among the top 10, which account for 64% of holdings. So far this year the fund is down more than -9%.

The solar sector is currently struggling with excess capacity, shrinking margins, and lower government subsidies. Many of the China-based companies are also plagued with accounting issues, raising questions about the companies’ financial footings.

Even if First Solar reports an outstanding second quarter (not terribly likely), the effect on the sector and on the ETFs that are heavily invested in solar stocks ought to remain muted.

Paul Ausick

Predicting markets and economic patterns is difficult over the next 20 years because there are many unknowns.  After all, who will be President in 2016?  What will tax laws be in 2020?  Which of today’s deadly diseases will be cured in 2020?  Which regions will experience wars by 2020?  This is why futurism may be one of the more unique approaches in investing. ETFs are often called the mutual funds of the future and our goal is to meld a futurist outlook into an investing strategies.

A rule of long-term investing is that what investments feel good today, such as those in Chinese and Indian markets, may not generate returns tomorrow.  Investors will face short-term pain for long-term gain. Futurists are always thinking beyond the next recession and the next boom behind it.

Beyond Emerging Markets… Frontier Markets

If you are thinking about China or India over the next 10 to 20 years, there is plenty to consider.  Both countries have grown exponentially as they became some of the world’s largest economies. Think post-Chindia and post-BRIC.  ”Frontier markets,” a term which has come up in recent years that goes beyond ‘emerging markets’ is ‘frontier markets.’  These “frontier market” economies still have room for growth.  Perhaps nothing illustrates this better than The NatGeo World Map at Night.

When it come to Africa and other Frontier Markets, there are three exchange-listed vehicles that we usually choose.  All are generally more volatile than the broader market stock indexes in the developed world.  Many frontier funds base performance  off of the MSCI Emerging Markets Index rather than the S&P 500.

Morgan Stanley Frontier Emerging Market Funds, Inc. (NYSE: FFD) is a small closed-end fund with roughly $105 million in assets.  This fund has diverse investments in banks, breweries, miners and utilities.  At its semi-annual report, the fund listed holdings in 21 nations including Nigeria, Argentina, Bangladesh, U.A.E., Kenya, Kuwait, Pakistan, Serbia, Qatar, Lebanon and Greece.  Average volume is light at just under 20,000 shares in a day and its 52-week range is $10.52 to $15.23.

Market Vectors Africa Index ETF (NYSE: AFK) from Van Eck seeks to track the performance of the Dow Jones Africa Titans 50 Index, which is full of companies that are headquartered in Africa or that generate the majority of their revenues in Africa.  It holds banks, breweries, miners, utilities, and more.  South Africa is where the largest number of the fund’s holdings are based. Assets under management were listed as $92 million in mid-November, its 52-week trading range is $26.60 to $34.88, and average daily volume is close to 25,000 shares per day.

iShares MSCI South Africa Index (NYSE: EZA) is an ETF that seeks to track the MSCI South Africa Index and it is one of the largest  vehicles out there since South Africa has a more established markets and is more politically stable compared with other African nations.  The fund invests in South African companies and has roughly $520 million in assets.  It trades close to 400,000 shares a day, and its 52-week range is in the low-$50s to $72.77 (flash crash low was listed as $23.00).  Its holdings include Anglo Platinum, AngloGold Ashanti, Firstrand, Gold Fields Ltd., Sasol, and Standard Bank.

Is Africa risky?  Are many other nations in the Frontiers markets risky? Absolutely.  But many of these nations have some of the biggest undisturbed deposits of natural resources.  That’s why we have highlighted these ETF and fund products rather than make individual picks.

Are You Ready For The International Water Wars?

Americans, Canadians, and many Europeans take potable water for granted.  However, Montezuma’s Revenge and many water-borne illnesses are rather common around the globe.  Building water filtration systems and desalination plants is costly. Nations are already setting limits on water resources.  Don’t ever discount the future of water.  Wars could be fought over potable water sources.  If you refer to that Nat-Geo World at Night Map, you can guess where much of the water resources are needed.

Many speculators have invested in the water industry for years.  It is no wonder that GE, 3M, and many other conglomerates have invested in the sector.  PowerShares Global Water (NYSE: PIO) and PowerShares Water Resources (NYSE: PHO) are two ETFs that compete in the world of water investing.

The PowerShares Water Resources (NYSE: PHO) seeks to track the Palisades Water index and it tends to have more of a U.S. focus.  Of course, many of these companies were hurt because they built new infrastructure ahead of housing developments that were scraped when the bubble burst.  PowerShares Water U.S. assets are close to $1 billion. It trades well over 200,000 shares per day, and its 52-week range is $14.70 to $18.68. (outside flash crash listed low of $6.99) to $18.68.

The PowerShares Global Water (NYSE: PIO) seeks to track the Palisades Global Water index, and it invests in U.S. companies and large international companies.  This is a smaller fund than the domestic water fund (PHO) from PowerShares.  Still,  it has more than $300 million in assets and trades close to 60,000 shares per day, and it has a 52-week range of $15.60 to $19.46.

J.P. Morgan Asset Management and Water Asset Management acquired Southwest Water, and that Water Asset Management is a private investment vehicle.  These are four small water mutual funds: Kinetics Water Infrastructure Advantaged Fund (KWIAX), PFW Water Fund (PFWAX), Allianz RCM Global Water Fund (AWTAX), and Calvert Global Water Fund (CFWAX).

NANO-NANO… Take Me To Your InnerSpace

The word nanotechnology, or nanotech for short, is another futurist technology. Many aspects of nanotechnology are already in use today in chemicals and other products.  This may also be one of the most controversial issues in the world of technology.  Think about atomic and molecular scale systems comprised of compounds between 1 to 100 nanometers, or one billionth of a meter.  There have been fortunes made by investors and there have been many fortunes lost.

Imagine machines so small that they could operate and move freely in your blood.  Imagine coatings that are comprised of molecules and materials small enough that they get a perfectly flat surface.  Unfortunately, you also have to consider toxicity, regulation, and the potential for a destructive use for such small products.  There is one ETF in the PowerShares Lux Nanotech (NYSE: PXN).

The PowerShares Lux Nanotech (NYSE: PXN) from Invesco seeks to track the the Lux Nanotech index.  It is comprised of some well-known companies and many companies have nanotech as a portion of their business.  The ETF has been around since the end of 2005 and has never recaptured its former highs.  It is also small at about $6 million in assets and trades under 25,000 shares a day on average.  Its 52-week range is $7.74 to $10.85.  Some of the companies in the fund include A123 Systems, Elan, 3M, GE, and Headwaters; but this ETF has some very risky and very volatile holdings as well.

Harris & Harris Group, Inc. (NASDAQ: TINY) is a nanotech venture capital fund whose website address tinytechvc.com tells what it is all about.  Its market capitalization is roughly $137 million, it trades close to 100,000 shares per day, and its 52-week range is $3.70 to $5.50.  While this is not a fund, it is close enough as the VC-company’s portfolio has more than 30 investment company holdings.  The company claimed a net asset value of $4.51 per share as of September 30, 2010, but founder Charles Harris also passed away at the end of September 2010.

Advanced Batteries… High on Lithium

All of those rechargeable batteries, batteries in consumer electronics and electric cars need lithium, which makes it a trend for futurists to consider.  There are two key risks here for this precious commodity: it could eventually run out or become uneconomical.  Moreover, China and Russia are major suppliers, which gives the sector an element of political instability.

Is it possible a better technology could come along?  Of course.  Still, there are many opportunities in the industry and it is probably no accident that behemoths such as General Electric have already invested in advanced batteries and have vowed to continue to do so. Lithium demand has nearly doubled in the past decade from above 15,000 metric tons in 2002 and is expected to rise to 55,000 metric tons by 2020 , according to the TRU Group.

Global X Lithium ETF (NYSE: LIT) is a very new ETF that launched in the summer and its holdings are solely in companies active in exploring and mining of lithium and producing lithium batteries.  So far it has been a big success.  The fund seeks to track the Solactive Global Lithium Index. Some key holdings are Sociedad Quimica Y Minera De Chile (above 22% of the fund), FMC Corp., Rockwood Holdings, Sanyo Electric, Ener1 and A123 Systems.  Assets under management are $91.5 million, it trades over 100,000 shares on an average day, in a range of $15.63 to $21.30.
Alternative Energy, In A Broader Sense

Investing in alternative energy may hold the promise of the future.  It has also been very painful even for futurists with a decade or longer outlook.  True futurists may seek an answer out of wind, solar, wave, geothermal, biofuels and even nuclear energy.  Not all alternative energy is technically renewable.  But the world needs alternative energy sources.  That is no longer even debated in public by most oil executives.

A problem that arises even for futurists with a ten-year outlook or longer is that the oil and gas giants of today may be the leaders of alternative energy in the future.  BP plc (NYSE: BP) has one of the worlds largest solar operations, and it is not unchallenged by other oil and gas giants.  Another caveat is that you do not need to be a futurist to see how many alternative energy and renewable energy investments are often considered nothing more than highly leveraged bets against the future price of oil.

PowerShares WilderHill Clean Energy (NYSE: PBW) is one of the go-to ETF products in alternative energy.  The fund is meant to track the performance of the WilderHill Clean Energy index.  Its largest holdings do seem to be more geared toward solar, which is most established alternative energy technology.  Some of its key components are First Solar, Broadwind Energy, IDACORP, JA Solar, and Suntech Power.  The fund has more than $550 million in assets, it trades over 300,000 shares per day, and its 52-week range is roughly $8.25 to $11.95.  The biggest issue is performance as it was worth over $25 at the 2008 peak versus close to $10.00 currently.

PowerShares Cleantech (NYSE: PZD) is the international and smaller competing version of the PowerShares Wilderhill Clean Energy ETF.  It is meant to track the price and yield performance of the Cleantech index.  Some of its top holdings are ABB, Corning, First Solar, IBERDROLA, Novozymes, Siemens, and Vestas Wind Systems.  Assets are about $150 million, it trades only about 14,000 shares a day and its 52-week range is $20.00 to $25.95.  This too suffers from poor performance as its shares were above $35.00 in the 2008 peak versus under $25 today.

An even more international focus in clean energy is the PowerShares Global Clean Energy (NYSE: PBD).  Its focus is to track the performance of the WilderHill New Energy Global Innovation index and many more companies are global.  Most of its larger constituent members are not known to most US investors.  The market cap is fairly small at about $160 million, it trades about 40,000 shares a day, and its 52-week range is $11.51 to $17.64.  It is far from alone in performance anxiety as this was above $30 at the peak and it is closer to $13.00 in November-2010.

Rare Earth… Not So Rare, But….

Any investors thinking of investing in rare earth should consider what happened in 2010 before putting on a futurist’s hat and taking a shot.   All caveats aside, nations such as the United States have to depend upon foreign sources of rare earth materials and these are critical for defense equipment  autos, clean energy, electronics and medical devices.  It is vital that these REOs and REEs have a local source and it is vital that we have our own sources.  The risks in investing in this might be like comparing biotech to DJIA components.  Futurists down the road will likely concede that many of the companies in this field were little more than Hail Mary passes with a story rather than real assets that could be monetized economically.

The Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) is the only current fund-oriented instrument that revolves around the REE and REO trade.  It is extremely new, its methodology is unproven, and its company constituents are often very risky companies with promises rather than operating histories.  The launch came at the end of October-2008 and it has been very actively traded.  For 2010, we are going to not discuss price ranges, performance, and more because of all the risks here.  Either way and regardless of how this performs, the rare earth theme is unlikely a theme that purchasing managers will not have to consider for the future.

Back to futurists and secular themes in general…

If you want to learn more about futurist thoughts and ideas, one source I have used for some time is the World Future Society.  This is not an investment web site.  It has offered insight for futurists and those who think beyond the next month for years and years.  It publishes The Futurist magazine, has free email newsletters, conferences, books, blogs, and links to many local chapters throughout the U.S. and around the world.

Predicting markets and sectors is a tricky game, and most forecasting models have a hard enough time getting the next week or month accurate.  Modeling for a decade or a generation is that much harder.

JON C.  OGG

This ETF aims to track equity index called the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index, which is designed to act as a “transparent and liquid benchmark” for the grid and energy infrastructure sector.  The most interesting aspect of this is that it may highlight which individual companies are making leaps and bounds here in the smart grid.  As you might expect, there are many overlaps in here with the other clean or green ETF products via the PowerShares Global Clean Energy (NYSE: PBD), PowerShares Cleantech (NYSE: PZD), PowerShares WilderHill Clean Energy (NYSE: PBW), and the First Trust NASDAQ Clean Edge Green Energy (NASDAQ: QCLN).

The Index is a modified-market cap weighted index and includes companies that are “primarily engaged and involved in electric grid, electric meters and devices, networks, energy storage and management, and industry-related software.”  The index is also jointly owned by the NASDAQ OMX Group,
Inc. (NASDAQ: NDAQ) and Clean Edge, Inc.

There are many overlaps in here as you might expect with electric and clean/green ETF products already on the market.  We have listed notes here on each if they are in the top ten components of other ETFs such as PowerShares Global Clean Energy (NYSE: PBD), PowerShares Cleantech (NYSE: PZD), PowerShares WilderHill Clean Energy (NYSE: PBW), and the First Trust NASDAQ Clean Edge Green Energy (NASDAQ: QCLN).

Some of the components are as follows (and noted if they are in top ten holdings in other clean or green ETFs):

• Advanced Energy Industries (NASDAQ: AEIS)
• American Superconductor (NASDAQ: AMSC) (also in PBW, PBD)
• Comverge Inc. (NASDAQ: COMV)
• Digi International Inc. (NASDAQ: DGII)
• Echelon Corp. (NASDAQ: ELON) (also in PBW)
• EnerNoc Inc. (NASDAQ: ENOC)
• ESCO Technologies Inc. (NYSE: ESE)
• General Cable (NYSE: BGC)
• General Electric Co. (NYSE: GE)
• Intellon Corp. (NASDAQ: ITLN)
• ITC Holdings Corp (NYSE: ITC)
• Itron Inc. (NASDAQ: ITRI) (also in PBW and QCLN)
• Mastec Inc (NYSE: MTZ)
• Pike Electric Corp. (NYSE: PIKE)
• Power-One Inc. (NASDAQ: PWER)
• Quanta Services Inc. (NYSE: PWR)
• Satcon Technology Corp. (NASDAQ: SATC)
• Valmont Industries Inc. (NYSE: VMI)
• WESCO International Inc. (NYSE: WCC)

The larger ADRs listed in the index are as follows:

• ABB Ltd. (NYSE: ABB) ADR (also in PZD)
• Cooper Industries Plc (NYSE: CBE) ADR
• Jinpan Intl Ltd. (NYSE: JST) ADR
• National Grid PLC (NYSE: NGG) ADR
• Siemens AG (NYSE: SI) ADR (also in PZD)
• Telvent GIT SA (NASDAQ: TLVT) ADR

In order to keep companies like GE from being the entire weighting, there is a methodology used to keep the weighting down or in-check.  These have to have smart-grid exposure and traded on an eligible stock exchange.  Pure-play components are given a collective 80% weighting, and the more diversified components not deemed pure-plays are given a 20% total weighting.  The pure-play components must derive 50% or more of revenues from smart grid, electric infrastructure, and other grid related activities.  Companies with a market cap of under $100 million are not eligible and the average daily share trading volume must have averaged $500,000 per day.

What is important to look at is the disclosures and risks associated with all ETF and ETN products so you know exactly what you are investing in…

There is a tracking-risk here which the release noted as “NON-CORRELATION RISK” where the ETF’s return may not match the return of the Index for a number of reasons: operating expenses for the fund not applicable to the index itself, and costs in buying and selling securities.  The ETF will generally not sell a stock because the stock’s issuer is in financial trouble, unless that stock is removed or is anticipated to be removed from the index.  The ETF will also invest in securities of non-U.S. issuers, which can be subject to additional matters of U.S.-traded stocks; and that also brings in a currency risk into play as the Net Asset Value is determined on the basis of U.S. dollars each day.

JON C. OGG
November 18, 2009