Who would have thought that investors would need SPF when they are investing in solar exchange traded funds (ETFs)?

The sun protection factor has more to do with stock volatility and risk appetite, mixed with education rather than zinc oxide content. However, there are some risks associated with solar ETFs that can burn. Shares of companies providing solar power are among the most risky in the stock market, as many of these companies are relatively new.

Two ETFs that are a welcome addition to the solar spectrum are:

• Claymore MAC Global Solar Energy Index ETF (TAN), $163 million in assets
• Market Vectors Solar Energy (KWT), $25 million in assets

Among the leading stocks in the industry are First Solar (FSLR), which is 10.9% in KWT and 9.2% in TAN, and SolarWorld (SRWF.PK), which is 9.4% in KWT and 5.1% in TAN. These and other solar stocks have been known to fluctuate sometimes as much as 10% in either direction on any given day, reports Aaron Pressman for Business Week.

Solar ETFs show why it’s preferable to buy a basket of stocks instead - single stocks might be incredibly volatile, but an ETF would take out some of the sting and spread the volatility a little more. The only true way to protect yourself from those kind of wild movements, however, is to have an exit strategy.

Much of the solar industry is based in Europe, where the governments and tax breaks give to the companies who invest and participate in alternative energy equipment. Until solar goes more mainstream and the companies gain stability the ETFs will remain just as risky as the single stocks.

Tags | Energy