Thematic investing has returned to the spotlight, but investors are moving beyond direct AI plays to focus on electrification infrastructure needed to power data centers and artificial intelligence (AI) growth.
Key Takeaways:
- ELFY provides broad electrification exposure through utilities, uranium, copper, and two other sectors with equal weighting.
- SMRF focuses specifically on small modular reactors, combining mining companies with nuclear technology firms.
- Nuclear energy addresses electricity demand from AI data centers and infrastructure growth.
The shift reflects a growing recognition that physical bottlenecks in energy and raw materials could limit AI expansion. While semiconductors and software dominate headlines, the electricity required to run data centers and AI systems represents a different investment opportunity.
Paul Baiocchi, head of fund strategy at SS&C ALPS Advisors, discussed two electrification-focused funds in an interview with Todd Rosenbluth, head of research at TMX VettaFi. He highlighted how investors can access this infrastructure buildout through utilities, nuclear energy, and commodities.
The ALPS Electrification Infrastructure ETF (ELFY ) takes a comprehensive approach to electrification infrastructure, according to Baiocchi. The fund was designed by Mark McClain, a utility finance expert from Ladenburg Thalmann who worked on financing deals supporting the utility sector.
ELFY draws from five different sectors including utilities, uranium, and copper, according to Baiocchi. The fund uses an equal-weighted methodology to prevent any single stock from dominating returns.
Equal weighting prevents one outperforming or underperforming company from disproportionately affecting the portfolio, Baiocchi said in the interview.
Electrification Strategy Includes Nuclear Focus
For investors wanting more targeted exposure, the firm offers the ALPS Nautilus SMR, Nuclear & Technology ETF (SMRF), which focuses on small modular reactors. The fund includes companies mining raw materials as well as firms developing nuclear technology, according to Baiocchi.
See more: A New ETF Right for the AI-Nuclear Intersection
Baiocchi positioned ELFY as the broad electrification play while SMRF allows investors to tilt their portfolios specifically toward the nuclear segment.
Baiocchi views nuclear energy as a solution to rising electricity demand that AI and data center projects will generate. Rosenbluth noted that the convergence of data center growth and electrification represents a confluence of trends.
The rise of AI has created what Baiocchi described as a “confluence of massive trends that we believe are secular in nature.” Headlines about data center projects highlight the electricity demand these facilities will require, he added. This makes nuclear energy a potential solution to that challenge.
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VettaFi LLC (“VettaFi”) is the index provider for ELFY and SMRF, for which it receives an index licensing fee. However, ELFY and SMRF are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of ELFY and SMRF.
