The world of exchange traded funds (ETFs) is ever-evolving. Nowadays, you can invest in a fund that covers just about any niche market. One that has caught my interest lately is the Claymore/MAC Global Solar Energy Index ETF, with the ticker symbol TAN. (Apparently, even Wall Street has a bit of a sense of humor.)

The fund selects companies based on “the relative importance of solar power within the company’s business model.” In other words, the fund covers only companies that derive more than one-third of their revenue from solar-related business. This includes companies directly involved in the production of solar power equipment and products for end users, as well as companies that fabricate parts for solar companies, provide services for solar-equipment producers, or supply raw materials, among other criteria.

While many solar companies have been beaten down this year, the industry still shows great promise. Solar currently generates less than 1 percent of America’s power needs, which means there is plenty of room for growth.

The solar industry still faces hurdles, such as the current worldwide shortage of polysilicon, a key component of photovoltaic cells. Fortunately for us, one of the companies in TAN is MEMC Electronic Materials (MEMC), a major supplier of silicon wafers. So even if actual production slows, you still own a company that benefits from the shortage of silicon.

The ETF is diversified amongst countries, with Chinese companies making up 30 percent of the index, Germany 29 percent, and the U.S. around 26 percent. Market capitalization is mostly small cap (at just over 42 percent) and mid cap (at 30 percent). This means the fund isn’t reliant on one company or country for success, and should be able to weather any growing pains facing the solar industry.

This is a long-term buy and hold position, as it will likely take many years for solar to gain widespread acceptance as the future of energy. When that time comes, TAN will be the ETF you want to own.

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