• February 26, 2024

For Renewable Energy Exposure, Go with GRID

P.Resident Biden sets the renewable energy agenda in the history of this country. The fate of this proposal now rests with Congress.

In the President’s honor, he is at least trying to keep an election promise – something politicians in both parties often fail. That promise is a major reason the clean energy exchange has involved funds of all kinds ETFs with the best performance of the last year.

Things will look different in 2021. Biden’s green energy ambitions feed into many of these ETFs and their underlying components. Coupled with market participants’ expectations that the wafer-thin Congress majorities of Democrats will lead to a reduction in spending on renewable energy, this is why broad-based ETFs, solar and wind ETFs have stalled this year.

However, not all renewable energy ETFs will have problems in 2021. A prime example that is still thriving is this First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRATING).

GRID time to shine

GRID is up 8.54% since the start of the year, but that is still a standout figure among green energy ETFs and underscores the importance of grid technology and threatening opportunities for investors in this segment.

Think of GRID like this: Solar and wind still need grids to deliver the electricity they generate to households and businesses. A resilient power grid is a national security issue and should be at the heart of any energy-related legislative agenda. As the west coast wildfires and freezing in Texas this winter last year prove, having adequate mesh technology is of the utmost importance.

GRID, which turns 12 later this year, is the original ETF to take up this theme. The fund tracks the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index.

“The index comprises companies that mainly deal with power grids, electricity meters and devices, networks, energy storage and management and use software for the smart grid infrastructure.” according to First Trust.

While short-term issues highlight the potential of GRID, so are long-term issues. It is estimated that network spending could reach $ 14 trillion over the next three decades.

“In our view, a paradigm shift in the generation and distribution of electrical energy could be underway due to the advent of affordable wind and solar energy, new energy storage technologies and the proliferation of microgrids, among other things.” according to First Trust research. “This transition will require massive capital investments to improve electrical infrastructure around the world.”

GRID has the right recipe

Of course, exposure to grid technology can be found elsewhere in the ETF space – usually in broader clean energy funds or disruptive technology funds. For investors who want to be tactical and profit from a specific theme, GRID is the way to go.

“From our point of view, many GRID holdings are well positioned to benefit from these trends. As of 02/28/21, GRID’s portfolio was mainly allocated to stocks based in the US (66.3%) and the European Union (29.7%), ”said First Trust. “From a sector perspective, GRID prefers stocks in the industrial (51.0%) and information technology (27.1%) sectors.”

This mix provides GRID with a decent mix of cyclical and growth stocks and positions the fund in such a way that it can benefit from government generosity even in a reduced form.

The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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Jack

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