First Trust brings its smart grid ETF to Europe
First Trust, the Wheaton, Illinois-based funds management giant, is bringing its smart grid and clean energy ETF to Europe.
The First Trust Nasdaq Clean Edge Smart Grid Infrastructure UCITS ETF (GRID) has been listed in the US since 2009, and currently holds $720M in assets.
GRID tracks (and will track) the NASDAQ OMX Clean Edge Smart Grid Infrastructure index.
The index is built with help from Clean Edge, a consultancy that specialises in smart grids. Clean Edge has ultimate authority over which stocks get included. Clean Edge looks for companies right along the energy value chain, including those making batteries, electricity meters, energy-related software, and those just servicing the grid.
Smart grid companies get divided into pureplays and non-pureplays. Where pureplays are defined as those making 50% of revenue in this theme, non-pureplays as making less than 50%.
Pureplays can take up to 80% of the index, non-pureplays can take 20%. All companies are market weighted.
The fund charges 0.70%.
Bernie’s analysis – it’s 2009 again; the importance of patience
Having lain in bed asleep for many years, GRID started seeing solid inflows after Joe Biden got elected. Investors saw a Green New Deal (Build Back Better) on the horizon and decided to invest in politics. First Trust is now trying to pull the same trick in Europe. As such, there is nothing strategically interesting about this launch.
What is more interesting though is just how political ETF launches can be. After Obama got elected in 2009, we saw a rush of clean energy ETFs getting launched (including GRID in the US). And after 2016, we saw a plethora of ESG ETFs getting launched, as investors tried to distance themselves from Trump. And now in 2021-2022 we’re seeing the same thing we saw in 2009: more clean energy and environmental ETFs getting launched. History repeats.
Perhaps the most interesting thing of all though is just how important it is to be patient. GRID saw basically nothing happen for 10 years – from 2010 to 2020. Inflows were basically zilch and it underperformed. Many fund managers in First Trust’s position would have just closed it, as they want inflows now not in 10 years’ time. That First Trust stayed patient – extremely patient – is the reason GRID has succeeded. I think there’s a lesson there in giving funds a good run time.
