Are Solar Mutual Funds a Good Investment in 2016?

solar mutual fundsSolar mutual funds are poised for big returns in 2016 as solar energy demand grows both in the United States and around the world.

A number of solar mutual funds have already seen double-digit gains in 2015. U.S.-based funds like the Guinness Atkinson Alternative Energy (MUTF: GAAEX) and Firsthand Alternative Energy (MUTF: ALTEX) funds are up 11.7% and 16.1% since Sept. 29, respectively.

That's because U.S. solar demand had a record-breaking year...

According to the Solar Energy Industries Association (SEIA), the solar industry supplied 40% of all new electricity-generating capacity through the first half of 2015. Right now, there's nearly 23,000 megawatts of solar capacity in the United States, which is enough to power more than 4.6 million homes.

Money Morning Global Energy Strategist Dr. Kent Moors says 2016 will be an even better year not just for solar mutual funds - but for solar energy investments all over the world.

"There's now a confluence of technology and economy that assures these new energy sources will continue to be adopted and improved upon - at ever-increasing rates," Moors said on Dec. 10. "This year we'll see alternatives take an outsize position in the sector."

And the solar market's strong performance in 2016 will come from demand growth in these two Asian countries...

These Two Nations Will Boost Solar Mutual Funds in 2016

solar mutual funds to buyChina and India will see record-high demand for solar energy in 2016.

China alone accounts for more than a quarter of global solar panel installations in 2015. The country's solar market will keep booming in 2016 thanks to the Chinese government's new panel installation quota. China's Xinhua News Agency reported the country will install 20 gigawatts worth of solar panels per year through 2020.

"In the United States, a solar project is completed every two minutes - and in China, the pace is even faster," Moors said.

But India is taking an even bigger solar power initiative. It's investing a whopping $100 billion to install solar panels over the next several years for one critical reason...

The country is racing to replace its failing electrical grid. Bloomberg reported India has missed every annual target to increase electricity production capacity since 1951. Back in 2012, the country experienced the largest blackout in history, which left 700 million people without power.

The Indian government plans to invest $100 billion to install 100 gigawatts of solar capacity by 2022. That's a massive increase from its current capacity of 4 gigawatts.

But demand in the United States will also grow at a fast pace next year. In fact, Congress just made a huge decision earlier this month that will lead to more than $125 billion worth of investments across America's solar industry. And that will have a major impact on these solar mutual funds...

Why U.S. Solar Mutual Funds and Solar Stocks Will Move Higher in 2016

On Dec. 16, Congress decided to extend the solar investment tax credit (ITC) beyond 2022.

You see, the solar ITC is a 30% federal tax credit for people that install solar panels on residential and commercial properties. It rewards their renewable energy investment by reducing the amount of income tax they would otherwise pay the federal government. It's considered the most supportive federal policy of the solar industry's growth in the United States.

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The ITC was set to expire at the end of 2016 for residential systems and drop from the current 30% level to 10%. But U.S. solar companies will see a huge inflow of investments next year now that the tax incentive has been renewed.

According to SEIA, the six-year extension will lead to more than $125 billion in private sector investment across the U.S. economy. The majority of it will go into small businesses, which make up more than 85% of U.S. solar companies.

"Beyond any shadow of doubt, the U.S. solar market has been given the most lucrative and government-backed seal of approval yet seen in the [photovoltaics] industry," said Finlay Colville, head of Solar Intelligence, to solar news blog PV-Tech.

Two of the most popular solar mutual funds are the Shelton Green Alpha Fund (MUTF: NEXTX) and the Alger Green Fund Class A (MUTF: SPEGX). Both funds are based in the United States and own assets focused on solar and environmental sustainability. SPEGX and NEXTX gained 9.1% and 17.1% in the fourth quarter, respectively.

The Bottom Line: Solar mutual funds are just one of many types of solar investments that will offer huge returns next year. As demand skyrockets in Asian countries and investors take advantage of the U.S. tax credit, the solar energy market is poised for another record year of growth in 2016.

Alex McGuire is an associate editor for Money Morning who writes about energy. Follow him on Twitter for all of the biggest news on solar energy stocks.

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