The Smart Grid Gets Its Own ETF

The government is pouring billions into the technology. Cisco CEO John Chambers said it will be bigger than the internet. The opportunity for investors is indeed big and now there’s a diversified way to play “it” – the smart grid revolution.

There are quite a few useless and overlapping ETF’s out there and this industry is in need of a major shakeout, but every once in awhile a great ETF comes along and the First Trust/Clean Edge Smart Grid ETF (GRID) is no exception. The ETF aims to track the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index and is a modified market cap weighted index which includes companies that are primarily engaged in all components of the smart grid – from the meters, to the network, to energy storage to software.

The fund aims to focus primarily on smart grid plays by weighting those companies deemed as smart grid “pure plays” much more (80%) than big companies with a fraction of their business in the smart grid arena (weighted at 20%). For example, a company like Itron (ITRI) is going to comprise a much larger portion of the ETF than a GE (GE) would.

The ETF is comprised of 29 companies, but here are the top 10 holdings. Companies must have a minimum float adjusted market capitalization of $100 million and a 3 month average daily dollar trading volume of $500K.

Other smart grid plays included are AEIS, COMV, DGII, ESE, BGC, GE, ITLN, ITC, MTZ, PIKE, SATC, VMI, WCC, ABB, CBE, JST, TLVT, SI and NGG.

Here’s a prospectus of the Smart Grid ETF.

After just two days of trading, the Smart Grid ETF offers plenty of liquidity, trading 200K shares today. I’d imagine liquidity will continue to improve rapidly in the coming months for you short term traders out there.

Comments

[Alan Young]

I agree this is an important niche that deserves its own ETF. But why is the biggest position in a PV-solar play? That's hardly related, much less essential, to a smart grid. It makes me think that the index is not well constructed to fit the investment thesis.

2009 Nov 19 04:41 PM

[cam addis]

Eric Wesoff had a good article in SA recently on SMA's dominant, growing market share in inverters (& patents). Still, 11+% is a little high.


On Nov 19 04:41 PM Alan Young wrote:

> I agree this is an important niche that deserves its own ETF. But
> why is the biggest position in a PV-solar play? That's hardly related,
> much less essential, to a smart grid. It makes me think that the
> index is not well constructed to fit the investment thesis.

2009 Nov 19 05:41 PM

[GimliJan]

Maybe they should consider weighting the fund based on the amount of actual orders for the company's products. Of course you could also include how much of the stimulus money the company is receiving as part of the calculation since it gives those company's a competitive advantage.
I would buy some of these companies but I too am not sure about the way they have it weighted.

2009 Nov 20 11:43 AM

[TinyTim]

Alan Y. - Good point. This ETF is less about the Smart Grid, a name it uses because of the huge hype around it, and more about renewable energy.
While the Smart Grid may encompass several technologies, from an investment standpoint, it's really just about smart meters, which is covered by 4 or 5 companies, only a few or which are pure plays.

2009 Nov 20 03:03 PM

[quick]

I've owned ITC for a while now, glad to see it's included! While it doesn't look perfect, I like the fact that at least it's not just market cap weighted.

2009 Nov 23 07:56 PM