The following are frequently asked questions about investing in solar-related companies.
Q. We’ve been hearing about solar as an alternative energy for years—what makes it viable now?
A. Global demand for energy continues to build, and yet governments and people are gradually recognizing the drawbacks of traditional sources of energy, including high cost, depleting resources and greenhouse gas emissions. By contrast, solar power captures the heat and light of the sun to generate electricity. The conversion of solar energy does not produce emissions or generate solid waste. It is generally regarded as a good source of renewable and sustainable energy.
Previously, adoption of solar power has been slowed by its cost. Electricity generated by coal-fired or nuclear plants is cheaper. However, additional funding into solar power development—including in the form of 15 Initial Public Offerings (IPOs) and spin-offs of solar-related companies worldwide in the last few years—is providing the research, products and services to help drive costs down. As the industry becomes increasingly economically viable, additional companies are typically or likely to be attracted to it—and this in turn may help develop the solar industry.
Q. Solar might be an appropriate solution for developing countries, but what are the prospects for the United States and more established companies to convert to solar energy?
A. It’s easy to understand why Americans might have their doubts about the inevitability of solar power adoption. In fact, other countries and their governments are far ahead of the United States in both their policies and their plans. U.S. solar equipment consumption, for example, is currently a very small percentage of world consumption. According to the March 2008 PV News published by Prometheus Institute, predictions call for U.S. demand to grow quickly over the next several years, by as much as 50% annually. However, even with such strong growth in US solar demand, PV News forecasts that by 2010, US/Canada demand will account for only 26% of the world total, with Europe at 51%, Asia at 20% and rest of the world at 3%.
The conversion to solar power is a global trend—worldwide, governments, organizations and people are increasingly motivated to find a way to use the energy from the sun to meet the energy needs of the earth’s 6.6 billion inhabitants.
Q. What do I need to know about how solar power works?
A. There are two main ways to convert energy from the sun into electricity.
- Thermal solar power uses the sun’s energy to heat fluids for purposes of water or space heating to generate electricity. The most common use of this technology is called concentrating solar power (CSP) systems, which are large-scale utility systems using mirrors to concentrate the sun’s rays. Currently, this technology is less expensive than other sources of solar power.
- Solar PV (Solar photovoltaic power) uses the photovoltaic process to convert sunlight into electricity and produces no waste byproducts. Solar PV can be equipped for use in homes and can help reduce or eliminate reliance upon traditional energy sources.
Q. Where can I learn more?
The following Web organizations and Web sites are recommended by Melvin & Company, a company that specializes in clean energy equity research and index development and an affiliate of MAC Indexing, LLC:
The above links are for informational purposes only. Claymore has not reviewed any of the content supplied and does not guarantee or endorse any claims or assume any responsibility for the content provided by the site.
Investors should consider the following risk factors and special considerations associated with investing in the Fund, which may cause you to lose money.
Investment Risk. An investment in the Fund is subject to investment risk, including the possible loss of the entire principal amount that you invest.
Equity Risk. A principal risk of investing in the Fund is equity risk, which is the risk that the value of the securities held by the Fund will fall due to general market and economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate, or factors relating to specific companies in which the Fund invests. For example, an adverse event, such as an unfavorable earnings report, may depress the value of equity securities of an issuer held by the Fund; the price of common stock of an issuer may be particularly sensitive to general movements in the stock market; or a drop in the stock market may depress the price of most or all of the common stocks and other equity securities held by the Fund. In addition, common stock of an issuer in the Fund’s portfolio may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the security experiences a decline in its financial condition. Common stock is subordinated to preferred stocks, bonds and other debt instruments in a company’s capital structure, in terms of priority to corporate income, and therefore will be subject to greater dividend risk than preferred stocks or debt instruments of such issuers. In addition, while broad market measures of common stocks have historically generated higher average returns than fixed income securities, common stocks have also experienced significantly more volatility in those returns.
Solar Energy Industry Risk. Prices of energy (including traditional sources of energy such as oil, gas, or electricity) or alternative energy may decline. The alternative energy industry can be significantly affected by obsolescence of existing technology, short product lifecycles, falling prices and profits, competition from new market entrants and general economic conditions. This industry can also be significantly affected by fluctuations in energy prices and supply and demand of alternative energy fuels, energy conservation, the success of exploration projects and tax and other government regulations and policies. Companies in this industry could be adversely affected by commodity price volatility, imposition of import controls, increased competition, depletion of resources, technological developments and labor relations. The solar energy industry has experienced an industry-wide shortage of polysilicon, which may place constraints on the revenue growth of solar energy companies and decrease such companies’ productivity. Solar energy companies may not be able to secure an adequate and cost-effective supply of solar wafers, cells or reclaimable silicon. If government subsidies and economic incentives for solar power are reduced or eliminated, the demand for solar energy may decline and cause corresponding declines in the revenues and profits of solar energy companies. Existing regulations and policies, and changes to such regulations and policies, may present technical, regulatory and economic barriers to the purchase and use of solar power products, thus reducing demand for such products. If solar power technology is not suitable for widespread adoption, or sufficient demand for solar power products does not develop or takes long periods of time to develop, the revenues of solar power companies may decline.
Foreign Investment Risk. The Fund’s investments in non-U.S. issuers may involve unique risks compared to investing in securities of U.S. issuers, including, among others, greater market volatility than U.S. securities and less complete financial information than for U.S. issuers. In addition, adverse political, economic or social developments could undermine the value of the Fund’s investments or prevent the Fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the United States. Finally, the value of the currency of the country in which the Fund has invested could decline relative to the value of the U.S. dollar, which may affect the value of the investment to U.S. investors. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts, or to pass through to them any voting rights with respect to the deposited securities.
Emerging market countries are countries that major international financial institutions, such as the World Bank, generally consider to be less economically mature than developed nations. Emerging market countries can include every nation in the world except the United States, Canada, Japan, Australia, New Zealand and most countries located in Western Europe. Investing in foreign countries, particularly emerging market countries, entails the risk that news and events unique to a country or region will affect those markets and their issuers. Countries with emerging markets may have relatively unstable governments, may present the risks of nationalization of businesses, restrictions on foreign ownership and prohibitions on the repatriation of assets.The economies of emerging markets countries also may be based on only a few industries, making them more vulnerable to changes in local or global trade conditions and more sensitive to debt burdens or inflation rates. Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible at times.
Small or Medium-Sized Company Risk. Investing in securities of small or medium-sized companies involves greater risk than is customarily associated with investing in more established companies.These companies’ stocks may be more volatile and less liquid than those of more established companies.These stocks may have returns that vary, sometimes significantly, from the overall stock market.
Micro-Cap Company Risk. Micro-cap stocks involve substantially greater risks of loss and price fluctuations because their earnings and revenues tend to be less predictable (and some companies may be experiencing significant losses), and their share prices tend to be more volatile and their markets less liquid than companies with larger market capitalizations. Micro-cap companies may be newly formed or in the early stages of development, with limited product lines, markets or financial resources and may lack management depth. In addition, there may be less public information available about these companies.The shares of micro-cap companies tend to trade less frequently than those of larger, more established companies, which can adversely affect the pricing of these securities and the future ability to sell these securities. Also, it may take a long time before the Fund realizes a gain, if any, on an investment in a micro-cap company.
Non-Correlation Risk. The Fund’s return may not match the return of the Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to the Index, and incurs costs in buying and selling securities, especially when rebalancing the Fund’s securities holdings to reflect changes in the composition of the Index.
The Fund may not be fully invested at times, either as a result of cash flows into the Fund or reserves of cash held by the Fund to meet redemptions and expenses. If the Fund utilizes a sampling approach or futures or other derivative positions, its return may not correlate as well with the return on the Index, as would be the case if it purchased all of the stocks in the Index with the same weightings as the Index.
Replication Management Risk. Unlike many investment companies, the Fund is not “actively” managed.Therefore, it would not necessarily sell a stock because the stock’s issuer was in financial trouble unless that stock is removed from the Index.
Issuer-Specific Changes. The value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole.The value of securities of smaller issuers can be more volatile than that of larger issuers.
Non-Diversified Risk. The Fund is considered non-diversified and can invest a greater portion of assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single investment could cause greater fluctuations in share price than would occur in a diversified fund.
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The Claymore/MAC Global Solar Energy Index ETF and its Shares are not sponsored, endorsed, sold or promoted by MAC and its affiliates. MAC makes no representation or warranty, express or implied, to the shareholders of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or the ability of the Index to track general stock market performance. MAC’s only relationship to the Investment Adviser is the licensing of certain trademarks and trade names of MAC and of the Index, which is determined, composed and calculated by MAC without regard to Investment Adviser or the Fund. MAC has no obligation to take the needs of the Investment Adviser or the shareholders of the Fund into consideration in determining, composing or calculating the Index. MAC is not responsible for and has not participated in the determination of the prices of the Shares of the Fund or the timing of the issuance or sale of such Shares or in the determination or calculation of the equation by which the Shares are to be converted into cash. MAC has no obligation or liability in connection with the administration, marketing, or trading of the Fund or its Shares.
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Copyright © 2008 Claymore Securities, Inc.
NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE