Investing in the Smart Grid/Enernet Initiative With ETFs (QCLN, GRID, ITC, ABB, NGK)

Remember a couple of years ago when you couldn’t get away from reading about the smart grid or what some others refer to as the Enernet? Today in the news it’s almost as if production on the first great infrastructure project of the twenty-first century has all but stopped.

But don’t be fooled…

  • Spending on the smart grid is still growing at a compound annual rate of 17.4%.
  • According to London research firm, Visiongain, the global smart grid market will total $33.91 billion this year. In the next three years, MarketWatch reports that number is projected to exceed $46.5 billion.

There are still plenty of opportunities to take advantage of this enormous energy initiative. You just have to know where to look.

And one of the easiest ways possible is through the First Trust NASDAQ Clean Edge Smart Grid Infrastructure ETF (NASDAQ:GRID).

GRID at a Glance

First Trust’s NASDAQ Smart Grid ETF is designed to seek investment results that correspond with the First Trust NASDAQ Clean Edge Green Energy Index (NYSEARCA:QCLN).

Although similar at first glance, GRID is more specific than QCLN in that it’s designed to track the performance of common stocks in the grid and electric energy infrastructure sector.

Among the fund’s top 10 holdings are:

Holding

Percent

ABB Ltd. (NYSEARCA:ABB)

8.48

ITC Holdings Corporation (NYSEARCA:ITC)

8.45

Quanta Services, Inc. (NYSEARCA:PWR)

8.21

Schneider Electric S.A. (EN Paris: SU)

8.08

Red Electrica Corporacion S.A. (London: RMP)

6.98

ESCO Technologies Inc. (NYSEARCA:ESE)

4.28

Itron, Inc. (NASDAQ:ITRI)

4.20

General Cable Corporation (NYSEARCA:BGC)

4.12

Prysmian SpA (Milan: PRY)

3.99

NGK Insulators, Ltd. (AMEX:NGK)

3.72

In all, GRID has 36 holdings. Eighty percent of these are pure plays on the smart grid. Meanwhile, the other 20% are more diversified companies such as ABB. The pure-play components must derive 50% or more of revenue from smart grid, electric infrastructure and other grid-related activities.

But no matter what, all companies must meet a certain criteria in order to be considered for this index. This includes…

  • Being classified as a smart grid, electric infrastructure and/or other grid-related activity company according to Clean Edge.
  • Have a minimum worldwide market capitalization of $100 million.
  • Have a minimum free float of 20%.
  • And have a minimum three-month average daily dollar trading volume of $500,000.

So how has the fund performed?

2011 was a rough year for smart grid companies in general. But so far this year, GRID has seen a bit of a rebound, up 13%. And as the smart grid rolls out, GRID has the potential to become a very rewarding high growth fund.

It does have an expense ratio of 0.70%, which is higher than most ETFs, but it still beats the heck out of the average annual fees for mutual funds. Not to mention, trading volume is also fairly thin for the fund, so you may want to consider a limit order when making your purchase.

The Bottom Line

The main advantage of an ETF like GRID is that it can be a pain in the neck trying to handpick smart grid plays that fit and benefit your portfolio. That’s why GRID may be the easiest way possible to diversify and capitalize on the smart grid/Enernet initiative.

Good Investing,

by Mike Kapsch, Investment U Research

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