Smart Grid ETFs: How To Invest in the Smart Grid (GRID and SIMS Review) 

The U.S. electric grid is aging rapidly. The growth in renewables and the need to charge electric vehicles require a more flexible, “smarter” grid. Companies that provide smart grid infrastructure are poised to benefit. You can participate in this trend through two smart grid exchange-traded funds, GRID and SIMS.

SustainFi August 20, 2021

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Why should you invest in the smart grid?

Growing demand for electricity

Today, demands on the electric grid are unprecedented and growing. We have way more devices to plug in. Some of those require tons of electricity to charge, such as electric cars.

To address climate change, the world needs to cut carbon emissions from vehicles, manufacturing, offices, and homes currently powered by fossil fuels. The electrification of cars and homes requires more energy to come from the electric socket.

Biden’s infrastructure bill will only accelerate the “electrification of everything” by allocating resources to electric cars and EV charging stations.

Unsurprisingly, a Princeton study found that electrification could double (or more) the energy used in the U.S. by 2050.

Inadequate supply of electricity

The current electric grid was developed over 100 years ago when energy needs were limited, and communication flow was one-dimensional. For example, energy would flow from the electric utility to the customer to power a transistor radio.

While demand has increased, the electricity supply has become more challenging to manage. Renewables such as wind and solar have grown as a percentage of electricity generation. By nature, wind and solar energy supply is variable, requiring effective management.

The grid is not coping well. In 2018 alone, U.S. consumers experienced, on average, six hours of power interruption. Even squirrels are now a major threat to the aging infrastructure.

Complicating the matter further, rooftop solar, household batteries, and “vehicle-to-grid” tech could also put electricity back into the grid. Energy transmission becomes two-way, which isn’t something the infrastructure we have today is ready for.

Why smart grid technologies will benefit

The smart grid – a flexible energy network that brings supply closer to demand – is essential to manage these challenges. Smart grids introduce a two-way dialogue so that utilities and customers can exchange electricity. This dialogue lets them harness home solar panels and EVs to put electricity back into the grid.

To develop the smart grid, we also need:

  • Technology to integrate EV charging and rooftop solar, prioritizing some appliances at peak times and helping send power back to the grid
  • Long-distance transmission lines to deliver electricity from remote solar or wind projects to consumers
  • Electricity storage and backup systems such as batteries in the event of outages or to mitigate the variability of wind and solar
  • Smart meters to measure electricity consumption in real time (not once a month, as is common today)
  • Smart appliances and devices that reduce demand on the grid at critical times
  • Energy-efficient home appliances and household systems, from energy-efficient heaters to storage batteries
  • A network of smart charging stations for electric vehicles

Potential beneficiaries include providers of electrification technologies such as Eaton Corp (NYSE: ETN).

Last but not least, utilities need to invest to protect the infrastructure, such as transmission lines, from weather-related risks like wildfires and floods, which are becoming more common. For example, PG&E’s antiquated infrastructure was one of the culprits in the devastating wildfires in California.

How you can invest in the smart grid

There are currently 12 infrastructure ETFs on the market, but only two target the smart grid infrastructure, GRID and SIMS.

First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID

  • Assets under management: $504 million
  • Expense ratio: 0.70%

Launched in 2009, GRID tracks an index of global stocks in the electrical energy infrastructure sector. These businesses deliver electric grids, meters, networks, energy storage and management, and relevant software. More weight is assigned to pure plays. To be included, stocks must have a market capitalization of at least $100 million.

The fund has over $500 million in assets and charges 0.70% annually ($70 on a $10,000 investment).

GRID has 70 holdings, mostly companies that make electrical components, diversified industrial companies, and electricity stocks. Its investments are based in the U.S. (nearly 60% of assets), followed by Switzerland, Italy, and France (around 8% of assets each).

The fund’s top three investments are electrification technology supplier Eaton Corp (NYSE: ETN), energy and automation company Schneider Electric SE (EPA: SU), and Johnson Controls International Plc (NYSE: JCI), a conglomerate that produces HVAC, fire, and security equipment. However, the ETF’s investments are very concentrated; the top ten holdings are over 60% of the fund’s assets.

Here are the fund’s top ten holdings:

Holdings% of Fund
Eaton Corporation Plc8.52%
Schneider Electric SE8.41%
Johnson Controls International Plc8.13%
ABB Ltd8.11%
Aptiv Plc7.53%
Samsung SDI Co., Ltd.4.34%
Enphase Energy, Inc.4.22%
TERNA – Rete Elettrica Nazionale SpA4.07%
Prysmian SpA3.80%
SolarEdge Technologies, Inc.3.77%

Data as of 8/18/2021

GRID was up 48.3% in 2020 and 15.4% year-to-date.

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SPDR S&P Kensho Intelligent Structures ETF (SIMS)

  • Assets under management: $54 million
  • Expense ratio: 0.45%

Launched in 2017, SIMS tracks an index of U.S.-listed “intelligent infrastructure” companies, including smart building infrastructure, smart grids, intelligent transportation infrastructure, and intelligent water infrastructure. More weight is assigned to pure plays.

SIMS has over $50 million in assets and charges 0.45%.

The top sectors are electrical components, industrial machinery, and building products. Over 80% of the fund is invested in U.S. companies, followed by Canadian and Chinese stocks.

The fund owns 54 stocks, though it’s less concentrated than GRID (the top ten stocks are only 28% of the fund’s assets). The top stock, heating, ventilating, and air conditioning systems manufacturer Carrier Global Corp. (NYSE: CARR), is only 3% of the fund. The other top three stocks are semiconductor manufacturer Silicon Laboratories Inc (NASDAQ: SLAB) and Evoqua Water Technologies Corp (NYSE: AQUA).

Here are the fund’s top ten holdings:

Holdings% of Fund
Carrier Global Corp.3.15%
Silicon Laboratories Inc.3.05%
Evoqua Water Technologies Corp3.04%
Pentair plc2.98%
Xylem Inc.2.90%
Johnson Controls International plc2.88%
Badger Meter Inc.2.87%
Atlantica Sustainable Infrastructure plc2.72%
Honeywell International Inc.2.63%
Qorvo Inc.2.61%

Data as of 8/18/2021

SIMS was up 29.9% in 2020 and 5.8% year-to-date in 2021.

GRID vs. SIMS: which one is better?

FundExpense RatioHoldings% Fund in Fossil FuelsMSCI ESG RatingSustainalytics ESG Rating2020 Return2021 YTD Return
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID)0.70%702.2%AAA5 / 548.3%15.4%
SPDR S&P Kensho Intelligent Structures ETF (SIMS)0.45%545.0%AA3 / 529.9%5.8%

Data as of 8/18/2021

Despite investing in a similar theme, GRID and SIMS don’t have as much overlap as you would expect. In fact, the two funds only own five stocks in common.

With GRID, you:

  • Own more international stocks
  • Are very concentrated in the top ten stocks like Eaton Corp
  • Are invested in a larger fund (larger ETFs are less likely to close)
  • Are less invested in fossil fuels and benefit from higher environmental, social, and governance (ESG) ratings from ESG rating providers MSCI and Sustainalytics

With SIMS, you:

  • Invest mostly in U.S. companies (over 80% of the fund)
  • Are more diversified (the top ten stocks are only 28% of assets)
  • Pay less in expenses (SIMS expense ratio is 0.45% vs. 0.70% for GRID)

💰 Takeaway

  • The aging electric infrastructure needs to adjust to challenges poised by growing demand for electricity, the growth in renewables, and two-way power transmission from electric cars, battery storage, and rooftop solar
  • Two ETFs – GRID and SIMS – let you invest in making the grid smarter and more efficient

🔔 Interested in learning more about ESG funds? See our guide to ESG ETFs

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