President Biden is pitching the most renewable energy agenda in this country's history. The fate of that proposal now lays with Congress.
To the president's credit, he's at least attempting to make good on a campaign trail promise – something politicians from both parties often at fail. That pledge is a primary reason why clean energy exchange traded funds of all stripes were among last year's best-performing ETFs.
In 2021, things are different. Biden's green energy ambitions being baked into many of these ETFs and the underlying components. Coupled with market participants' expectations that Democrats' razor-thin congressional majorities will lead to scaled down renewables spending is reason why broad-based, solar and wind ETFs are faltering this year.
However, not all renewable energy ETFs are struggling in 2021. A prime example one that's still thriving is the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID).
GRID Time to Shine
GRID is up a market trailing 8.54% year-to-date, but that's still a stellar showing among green energy ETFs and it underscores the importance of grid technology and looming opportunities for investors in this segment.
Think of GRID this way: Solar and wind still need grids to deliver the generated power to homes and business. A robust power grid is a matter of national security and should be centerpiece of any energy-related legislative agenda. As last year's wild fires along the West Coast and the Texas freeze this winter prove, sufficient grid technology is beyond paramount.
GRID, which turns 12 years old later this year, is the original ETF to tap into that theme. The fund tracks the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index.
“The index includes companies that are primarily engaged and involved in electric grid, electric meters and devices, networks, energy storage and management, and enabling software used by the smart grid infrastructure sector,” according to First Trust.
While near-term issues highlight potential with GRID, so does long-term spending. By some estimates, grid spending could reach $14 trillion over the next three decades.
“In our view, a paradigm shift in electrical power generation and distribution may be under way due to the advent of affordable wind and solar power, new energy storage technology, and the proliferation of microgrids, among other trends,” according to First Trust research. “For this transition to occur, massive capital investments to upgrade electrical infrastructure around the world will be needed.”
GRID Has Right Recipe
To be sure, grid technology exposure can be found elsewhere in the ETF space – usually in broader clean energy or disruptive technology funds. For investors looking to be tactical and capitalize on a specific theme, GRID is the way to go.
“In our view, many of GRID’s holdings are well positioned to benefit from these trends. As of 2/28/21, GRID’s portfolio was allocated primarily to stocks domiciled in the US (66.3%) and European Union (29.7%),” said First Trust. “From a sector standpoint, GRID favors stocks in the industrials (51.0%) and information technology (27.1%) sectors.”
That mix gives GRID a decent mix of cyclical and growth stocks while positioning the fund to capitalize on government largess, even in reduced fashion.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.