As First Solar surged so much in one day, we cannot help but assume that many investors and traders are going to be looking for which ETFs and other pools of investments that they may have missed. Some will look for short sales and some will look for buying opportunities. That being said, First Solar shares lifted just about anything and everything tied to solar and alternative energy in the realm of ETFs and related shares.

First Solar shares closed up 45% at $39.35 and the stock hit a new 52-week high of $41.00 on Tuesday. The trading volume of 39.7 million shares had to be aided by short sellers covering their bad bets and grabbing their throats. That 39 million shares is a near-term record in trading volume. With that much trading volume in one day, you can imagine that the solar bulls and the solar bears are going to be out fighting for blood for the rest of this week.

We have identified the top alternative energy and solar ETFs for investors. So that you would not get tricked into reading a name alone, we also included a brief description to show which are solar-only and which ones include foreign issues.

Market Vectors Global Alternative Energy ETF (NYSEMKT: GEX) run by Van Eck aims to track the overall performance of a global universe of listed companies engaged in the alternative energy industry. It has only $50 million in assets and First Solar has only 3.34% of the assets and is ranked as the number 12 position. It is still the largest solar stock in the ETF and the ETF has many solar players behind it. This has very thin volume and is up 3.3% on the day, and we would point out that many stocks are NOT US-listed shares.

Guggenheim Solar (NYSEMKT: TAN) is a pure-play ETF for solar run by Guggenheim and it has many non-US listed stocks. First Solar is the largest weighting here with 14.5% of the fund’s $57 million in assets under management. With a weighting this high, which likely going to be understated if prices remain static, the ETF was up 15% at $18.15 right before the closing bell.

The iShares S&P Global Clean Energy Index (NASDAQ: ICLN) under BlackRock has only about $27 million in assets and is thinly traded. First Solar ranks as number-9 in the portfolio with a 4.88% weight in the fund. This iShares ETF has many foreign issues as well and was up 5.7% at $7.74 late in the day on thin volume.

Market Vectors Solar Energy ETF (NYSEMKT: KWT) is also run by Van Eck but just tracks solar stocks and has thin trading volume with only about $11 million in assets. First Solar leads this ETF with a 9.6% weighting. That alone helped it trade up 12.5% to $40.54 on the day.

There is also the PowerShares WilderHill Clean Energy (NYSEMKT: PBW) which was up 4.5% at $4.44 late in the day, but this is under Invesco PowerShares. The ETF is composed of companies that focus on greener and generally renewable sources of energy and technologies facilitating cleaner energy. First Solar is ranked all the way down at #17 in weightings at only 2.63% but the ETF aims to keep exposure of these global players at 3% or so max. At least it traded 800,000 shares or so shortly before the close.

First Trust NASDAQ Clean Edge Green Energy Index (NASDAQ: QCLN) has thin trading volume with only about $25 million in assets under the fund but shares were up 4% at $11.26 right before the closing bell. First Solar ranks only as #7 in weighting with 4.13% of the total fund, but it is the largest solar stock in the fund.

The Wall Street Journal noted Merkel’s need of 10 to 20 gigawatts of fossil capacity need to be built over the next decade.   Those 20 gigawatts are essentially equal to the amount of electricity Germany currently generates from its 17 nuclear plants. And these 20 gigawatts will be built in addition to another 10 gigawatts already under development and set to be completed by 2013.

Whether Germany builds new fossil fuel plants or new solar or wind plants, the country’s electricity grid needs to be upgraded. Germany is expected to spend at least 9.7 billion euros to build more than 2,200 miles of cables to connect new generation capacity with consumers. This project is a real boon to infrastructure providers like ABB Ltd. (NYSE: ABB), Siemens AG (NYSE: SI), Schneider Electric S.A. (OTC: SBGSY), Alstom SA (OTC: ALSMY) and General Electric.

Other companies that could benefit from Germany’s need for an improved grid is American Superconducter Corp. (NASDAQ: AMSC), which makes high-efficiency superconducting wire used for electricity transmission, and General Cable Corp. (NYSE: BGC).

There are also two relatively small ETFs that offer a investment opportunity in the buildout of the global energy grid. The larger of the two is First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ: QCLN), which tracks the NASDAQ Clean Edge Green Energy Index. The fund’s largest five holdings are National Semiconductor Corp. (NYSE: NSM), Linear Technology Corp. (NASDAQ: LLTC), First Solar, ON Semiconductor Corp. (NASDAQ: ONNN), and Cree, Inc. (NASDAQ: CREE). QCLN’s net assets total $37.2 million, and it’s year-to-date return is negative, at -2%. Since its creation in February 2007, the fund’s NAV has declined by -4.01%. Shares are lightly traded and opened today at $14.85, within a 52-week range of $12.93-$18.39.

The even smaller grid fund is the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (NASDAQ: GRID). The fund’s five largest holdings are Red Electrica Corp. S.A., NGK Insulators Ltd., Prysmian SpA, Schneider Electric, and Quanta Services, Inc. (NYSE: PWR). The fund seeks returns equal to the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index before expenses. The fund was created in November 2009 and its lifetime NAV is 12.66%. The fund’s net assets total just $27 million, and like QCLN, it is very lightly traded. The shares opened today at $32.06, within a 52-week range of $26.84-$35.82.

Building out the global grid is likely to cost $500 billion.  And much of the work hasn’t even started yet. Germany’s shift away from nukes forces the country to upgrade its grid, whether it wants to or not. This is definitely something worth watching.

Paul Ausick

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