Finance Roll

The monsoon season is here in Phoenix. If you've never experienced a monsoon in the desert, I recommend it highly. Over the last few days we've seen the storm clouds roll in and the rain come pouring down. We can get several inches of rain in just a few hours.

I like to sit on the patio and watch these buckets of rain fall.

Of course when I realized my roof had a leak, the monsoon suddenly lost some of its appeal. I of course quickly called a roofer to fix the small leak. This wasn't my first repair on the house. A short while back I had some work done on my kitchen and a bathroom. Of course I called a plumber. These projects were a bit beyond the skill set of a local handyman.

This got me thinking.

There's lots of specialization in the world these days . . . not just with roofers and plumbers but with everything.

You see it in your doctors, with most having some specialty. You see it in the supermarkets. There's 20 different types of olives, 50 different cheeses, and hundreds of types of wine. Your options are endless, and sometimes a little overwhelming.

I've found in the investing world it's even worse.

Decades ago your only real choices were bonds or stocks. Then Wall Street invented thousands of other securities. Investments like mutual funds, REITs, hedge funds, master limited partnerships, and now ETFs are widely available.

ETFs are my favorite selection out there.

When ETF's first hit the market I started incorporating them into my portfolio. ETFs provide a low cost way to invest in a diversified group of companies. They also give you real time pricing and trade intraday. Many of them also trade options. Some ETF's even let you short the markets.

I'm amazed at how crowded the ETF world is becoming.

The first ETFs were based on broad market indexes like the S&P 500 and the Russell 3000. Now you can buy ETFs that are focused on narrow sub-industries like medical companies working to cure certain diseases. And the expansion continues. Recently one of the big ETF companies started rolling out ETFs mirroring commodities like oil, gold, cotton, cocoa, and livestock just to name a few.

The specialization that's available is amazing. With such a wide variety of ETFS, you can optimize your investment portfolio any way you like.

The more specific the better.

Being able to break investments down into small sub-categories is great. You can buy the industries that are going up - like oil and gas, and avoid the industries that are falling - like banking and retail.

Solar is one of those hot industries that's benefiting from the recent run up in energy prices. Seven years ago you couldn't give away shares in a solar company. Now with oil quickly approaching $150 a barrel, it's seen as the alternative energy godsend.

There are two new ETFs that invest exclusively in the solar industry. First is the Claymore Solar ETF (TAN). The other is Market Vectors Solar Energy ETF (KWT).

Both focus on companies that generate a significant portion of their revenue from solar sales. With oil making new highs every day you'll see more and more focus on energy infrastructure. These stocks will really benefit from higher oil prices.

But there's a problem.

Neither of these funds holds more than 30 companies, making their investment universe quite small. This also adds to their volatility. It's not uncommon to see some of the solar companies fluctuate by 10% or 20% in a day. This can create some incredible volatility in the ETFs.

Recently we've seen this industry volatility to the downside. Both ETFs are off 15% or more. I think this is a great opportunity to take advantage of. We can use this downtrend to pick up these solar ETFs on the cheap.

Solar has a significant place in the future of our energy infrastructure . . . as an investment it will shine regardless of the weather.