First Trust Launches Smart Grid Infrastructure ETF | ETF strategy
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First trust launched a new thematic equity ETF in Europe offering exposure to the global smart grid infrastructure sector.
the First Trust Nasdaq Clean Edge Smart Grid Infrastructure UCITS ETF was listed on London Stock Exchange in US dollars (GRDU-LN) and the British pound (FGRD LN) as well as on top Deutsche Borse Xetra in euros (GRID GY).
Smart grids are innovative power grids that combine real-time data collection and analysis with digital communications technology to enable more efficient energy management.
The benefits of smart grids include reduced infrastructure costs, reduced carbon emissions, the ability to respond quickly to outages, self-healing capabilities, more uniform power distribution, and improved storage and renewable energy management.
However, one of the main challenges of smart grids is security, as networks are vulnerable to cyberattacks. Hackers have infiltrated the US grid several times before, while a cyberattack on Ukraine’s power grid in 2015 led to an outage that affected hundreds of thousands of people for hours.
The fund is linked to NASDAQ OMX Clean Edge Smart Grid Infrastructure Index which also underpins the US-listed company First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID US). GRID launched on Nasdaq in 2009 and currently houses $700 million in assets.
The index selects its constituents from a universe of developed market stocks with market capitalizations greater than $100 million and average daily trading volumes greater than $500,000.
The methodology selects companies with business activities related to power grids, electrical meters and appliances, energy storage and management systems, and smart grid software. Eligible companies are identified by Clean Edge, a US developer of thematic equity indices dedicated to the clean energy economy.
The components are weighted by float-adjusted market capitalization while setting the combined weight of pure-play companies (those that derive more than 50% of their revenue from smart grid activities) at 80% and the combined weight of companies “diversified” (those with significant exposure but less than 50% of smart grid revenue) at 20%.
In an effort to improve diversification, the index also caps the weighting of each of the five largest pure-play companies at 8%, the weighting of any other pure-play company at 4% and the weighting of any diversified company at 2%. .
The index is rebalanced quarterly and replenished semi-annually.
As of April 21, stocks listed in the United States and Ireland each accounted for a quarter of the index weighting, with the next country exposures being Italy (8.7%), France (8.6%), Switzerland (8.5%) and the countries of the South. Korea (4.5%).
Notable positions included Schneider Electric (8.1%), Johnson Controls International (8.0%), ABB (7.8%), Eaton (7.7%), Aptiv (6.7%) and Quanta Services ( 4.6%).
The ETF comes with an expense ratio of 0.70%.
Rupert Haddon, Managing Director of First Trust: “We are delighted to bring this longstanding US strategy to our European clients. With the energy revolution accelerating, a smarter grid is extremely relevant to today’s digital energy ecosystem. Growing demand for electricity along with outdated and inefficient infrastructure means that today’s electricity grid is unable to keep pace with 21st century technology. For our clients, this represents a less volatile way to gain exposure to the clean energy segment while potentially directly benefiting from future government infrastructure investments.
Ron Pernick, Managing Director of Clean Edge: “As clean energy technologies such as solar, wind and electric vehicles capture media and public attention, it is the grid that is the great catalyst for the transition energy. From next-generation transmission lines and two-way networks to distributed and utility-scale energy storage, a modernized grid is needed to meet the needs of an ever-clean, digital and resilient energy economy.