During a recent interview, Paul Baiocchi, head of fund sales and strategy at SS&C ALPS Advisors, explained why thematic ETFs and active fixed income are experiencing renewed interest as investors look beyond the Magnificent Seven’s dominance.
The Electrification Infrastructure Opportunity
According to Baiocchi, advisors are reevaluating portfolios and recognizing gaps in exposure to companies driving major market themes.
“If the conclusion is that you’re not getting representation of the companies that are at the forefront of some of the most important themes in the market, whether it be electrification, whether it be energy transition, whether it be innovation in the medical space, you’re trying now to figure out ways to offset or complement your core equity exposures,” Baiocchi said.
The ALPS Electrification Infrastructure ETF (ELFY ) takes a “picks and shovels” approach to the theme. It focuses on downstream infrastructure rather than AI tech giants. The fund owns pipeline companies, utilities, and industrial firms that benefit from rising electricity demand driven by AI data centers, reshoring, electric vehicle adoption, and residential electrification.
Baiocchi noted that these sectors represent a small slice of traditional portfolios. Utilities comprise just 2% of the S&P 500, while energy accounts for 3%, despite playing important roles in supporting electricity demand growth.
Active Management in Fixed Income
On the active management side, Baiocchi highlighted the ALPS Smith Core Plus Bond ETF (SMTH ), which has grown to over $2 billion in assets in less than two years. With additional rate cuts expected, investors are moving from cash equivalents to longer-duration strategies.
“Investors who have been comfortable sitting in cash or sitting in CDs or sitting in cash equivalents, money market funds, have been rewarded with pretty attractive yields,” Baiocchi said. “Now that we’re expecting to get more rate cuts, the yields on offer in cash equivalents are expected to go down.”
Baiocchi explained that active fixed income managers have consistently outperformed their benchmarks, unlike their large-cap equity counterparts. He noted that the aggregate bond index wasn’t designed to be investable. Rather it serves as a measurement tool, creating opportunities for skilled managers to add value.
Addressing Market Concentration
Looking ahead to 2026, Baiocchi questioned whether the market will finally broaden beyond the Magnificent Seven. Those stocks represent over 30% of the S&P 500 when combined with the dominance of technology, communication services, and consumer discretionary sectors.
He suggested several diversification strategies including international exposure, small- and midcap allocations, value-oriented approaches, and quality strategies. Each aims to change the factor composition of equity allocations while reducing concentration risk.
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VettaFi LLC (“VettaFi”) is the index administrator and calculation agent for ELFY, for which it receives a fee. However, ELFY is 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.
