Solar ETFs Yes, Cloud ETF No

by: Dana Blankenhorn

The purpose of an ETF is to spread risk and deliver a “pure play” in a sector.

The launch of an ETF for cloud computing, dubbed SKYY, is causing a lot of excitement. It launches July 6.

Too much excitement, in my opinion.

The reason is that while cloud computing is relatively new, leadership is fairly established, and mostly with companies that are not pure plays in the field. (NASDAQ:AMZN) is more a retailer than a cloud company, but its EC2 cloud is the market leader. VMWare (NYSE:VMW), a purer cloud play, is mainly providing cloud software, not infrastructure – the company's aim is to support EMC data systems.

But there are stocks through which you can play the cloud. VMWare is one. Red Hat (NYSE:RHT) is another, and my personal favorite. Rackspace (NYSE:RAX) is a third. All represent less risk, and more potential reward, than an ETF.

Solar power is different.

Solar ETFs, like TAN and KWT, are necessary to spread risk across a sector that is still very unsettled. First Solar (NASDAQ:FSLR) may be the U.S. leader, but JA Solar (NASDAQ:JASO) and Suntech (NYSE:STP) are the global leaders, and both are based in China.

More important, solar technology is still in a state of flux. Will silicon panels win? Will thin-film technologies like cadmium telluride? Or will it be something entirely new, like a plastic that can be produced as easily as the cling wrap you put on leftovers?

I don't know. I report daily on solar technology and I can't give you a play in the space I would trust for more than a quarter or two.

In that case you're much better off with an ETF. Let the pros handle the stock picking. When they see someone losing share they will dump it, and pick up something new.

But clouds? Cloud stocks I can find myself. And so can you.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.