Wall Street is the place to find all sorts of investments you never knew you needed. If a segment of the stock market can be sliced, diced, or julienned, you can count on the professionals to come up with a way to do it. One popular sector lately has been solar energy, so it's not surprising to find a new fund that provides one-stop shopping to interested investors.
A bright outlook?
As fellow Fool Zoe Van Schyndel recently noted, Claymore Securities recently listed the Claymore/MAC Global Solar Energy ETF
I agree that solar energy is a promising area and that it may become a more integral part of our lives in the coming decades. However, I would advise caution for anyone looking to get a little sun with this particular ETF.
In general, very narrowly focused funds like this one simply don't provide enough diversification for the average investor. Most investors don't have a strategic reason for owning sector-specific funds, but are lured by the promise of outsized returns. Investing heavily in one sector in the hopes of boosting portfolio performance just isn't a good bet. Sector funds are notoriously volatile -- often prone to wild swings in performance from quarter to quarter. If you get into a sector fund at the wrong time, like at the peak of the market cycle for that sector, you're in for a world of hurt. Besides, with an expense ratio of 0.65%, this particular solar ETF is much more expensive than your average broad market exchange-traded fund.
If you really have your heart set on the solar sector, you might want to check out some of the "green" mutual funds that include solar energy companies amongst their holdings, but also branch out into other environmentally friendly areas. Options like Spectra Green (SPEGX) and the lineup of funds offered by Calvert are a good starting point. In fact, Spectra Green invests in many of the same companies as the Claymore Solar ETF, including First Solar
But Spectra Green doesn't limit itself to just this tiny area -- you'll find plays on other green themes as well. Green funds like these are a more diversified way of getting into a solar energy play, without taking on huge amounts of risk to do so. Thinking more broadly means there's much less chance you'll end up getting sunburned when it comes to your portfolio.
For related articles:
Whether you're in the market for exchange-traded funds or traditional mutual funds, the team at the Fool's Champion Funds newsletter has the inside scoop on all the hottest fund investments. Check us out with your free 30-day trial today.