When moving to the high end of the risk band, sometimes there can be a fine line between investing and speculating. Morningstar’s ETF research team is not averse to taking risks if we think that the potential upside is significant. However, there are times when visibility is so uncertain that gambling may be a suitable alternative……
…..For some ETFs, though, the inherent risks affect many of the companies instead of just a select few. The list below contains some of the most unpredictable ETFs in our coverage universe. These could be choices for a very risk-seeking investor, or one who is willing to find the nearest roulette table and bet it all on red.
Claymore/MAC Global Solar Energy (TAN)
Market Vectors Solar Energy ETF (KWT)
Concerns about high fossil fuel prices, global warming caused by carbon dioxide, and insufficient generation supplies to meet growing demand have all given the renewable energy industry new life. Throw in federal tax subsidies for electric production and state-mandated renewable portfolio standards in the United States, in addition to even stronger demand globally, and the next several years look set to be prosperous times for alternative energy producers and developers alike. Perhaps the most intriguing untapped resource is solar energy, and Claymore/MAC Global Solar Energy ETF provides a direct avenue for investors seeking exposure to this growing sector and is the vehicle of choice for investing in the solar sector, in our view. Another ETF to consider is the Market Vectors Solar Energy ETF.
Claymore/NYSE Arca Airline(FAA)
There have been more than 180 bankruptcies in the airline industry over the past 30 years. Capital intensity, minimal customer-switching costs, and cutthroat competition have plagued the industry since deregulation in the late 1970s. Recent volatility in oil prices has only exacerbated the industry’s structural issues.
Market Vectors Russia ETF(RSX)
Investors in stocks of Russian companies should be comfortable with a wild ride. Historically, the Russian government has shown little respect for property rights, and it has its hands in a number of businesses. The country just went through a recent war with neighboring Georgia. Russia is heavily dependant on oil and natural gas, and the slide in commodity prices and the value of the ruble in the second half of last year is still reverberating throughout the economy. We should note that Russian stocks have rebounded considerably off their lows.