A first of its kind always captures the attention of the European ETF market and one in particular stood out for me this year.
The First Trust Nasdaq Clean Edge Smart Grid Infrastructure UCITS ETF (GRID) was the first ETF in Europe to offer exposure to the smart grid and energy infrastructure, at a time when the sector come into sharp focus following Russia’s invasion of Ukraine and the growing impact of climate change.
Launched on 21 April, GRID tracks the NASDAQ OMX Clean Energy Smart Grid Infrastructure index of 80 stocks involved in the electric grid, electric metres, devices and networks, energy storage and management or software used by smart grid and electric infrastructure players.
The theme picks up on two of the world’s biggest challenges, climate change and the global energy crisis, both of which intersect on energy grids.
Recent geopolitical events have highlighted just how unfit for purpose our current grid infrastructure is while its role in the energy transition to a carbon-free economy is becoming ever more apparent.
According to the International Energy Agency, investment in electric grids must average around $600bn annually by the end of the decade to reach net-zero carbon emissions by 2050.
The ETF allows investors to achieve a less volatile way to gain exposure to the clean energy segment while benefitting from future government infrastructure investment.
In August, the passing of a landmark climate bill in the US led to a spike in performance in the clean energy sector.
Performance has been strong in the eight months since inception in a year where markets have faced a severe downturn. GRID has returned 15.6% over the past six months outperforming its clean energy peers.
In fact, the index has returned 73.5% over the past five years.
With a total expense ratio (TER) of 0.63% GRID is on the more expensive side of thematic ETFs, but this comes with more ‘pure-play’ exposures.
The index is 80% weighted towards ‘pure-play’ companies while ‘diversified’ securities make up the remaining 20%.
Other criteria for a stock's inclusion include a minimum float-adjusted worldwide market cap of $100m and a minimum three-month average daily trading volume of $500,000.
With a major focus from governments to improve energy infrastructure and ever more focus on energy transition solutions, GRID could well be a big winner over the next few years as the sector scales and innovates further.