When it comes to thematic investing, there are no right or wrong ways to access a theme. There are, however, trade-offs that come with the type of strategy or investment approach selected.
Consider the Electrification Theme
Between the rising demand for power tied to technology and artificial intelligence needs, the aging grid infrastructure in need of upgrades, and an ongoing move toward sustainability and decarbonization, there are several drivers powering up this theme.
What’s more, this isn’t the case just in the U.S., but globally, and by most accounts, this theme is still in its early days. As an opportunity set, electrification looks compelling as a long-term theme and growth play.
But how do you best access it?
There are a few ETFs that set out to capture this thematic opportunity with precision and conviction, but each with a slightly unique take. While sharing a common ground and universe of stocks, these thematic ETFs offer something different.
Let’s dive into three examples, all relatively new to market, each from a well-known product provider in the thematic category:
Defining Beneficiaries vs. Enablers
Each of these ETFs is considered a pure-play approach to the electrification theme. And each sets out to own companies that are beneficiaries of this theme. But they go about it in different ways, homing in or zooming out in this thematic opportunity to capture the infrastructure story. That translates into different holdings, different sector tilts, and different concentration considerations.
First, let’s look at ELFY, from ALPS. ELFY isn’t looking to invest in companies driving the rise in electricity demand. The fund focuses on the beneficiaries of this theme, which it defines as companies involved with “the process of charging, equipping, supplying or operating with electricity, or the conversion of a machine or system to the use of electrical power.”
Unique Sector Diversification
That said, ELFY is also the broadest take of these three funds on the theme. The portfolio offers unique sector diversification, with an eye for the broader infrastructure play here. Utilities is about 39% of the sector allocation, followed by industrials at 30%, But the fund also owns technology and materials, among others.
This comprehensive take on the theme can also be seen from the holdings perspective. ELFY has twice as many names in the portfolio versus ZAP, and nearly 3x the holdings of VOLT. To quote Paul Baiocchi, head of funds sales and strategy at SS&C ALPS Advisors, “ELFY doesn’t leave any stone unturned in the electrification theme.”
ZAP, from Global X, also focuses on beneficiaries of the theme. It defines them as “companies that are involved in conventional electricity generation, transmission, and distribution; alternative electricity generation and technology solutions; and the modernization, development, manufacturing, or implementation of grid infrastructure and smart grid technology.”
Tracking the Global X U.S. Electrification Index, ZAP leans heavily into utilities, which as a sector snags nearly 80% of the portfolio. Industrials capture the remaining 20%.
“U.S. AI data center power demand is projected to grow more than thirtyfold by 2035,” Global X’s Ido Caspi recently said. “This type of growth signals a structural shift where AI becomes the predominant driver of grid load growth, placing unprecedented pressure on utilities, power production, grid planning, and the construction sector.”
This pure-play approach owns firms like Constellation Energy, Eaton, and Nextera Energy among top holdings. And finally, there’s VOLT. The actively managed ETF from Tema looks to capture both beneficiaries and enablers of what the asset manager calls the "electrification megacycle.”
VOLT breaks down the theme along three verticals: power generation, grid management, and end-user application. The fund’s sector allocation is led by industrials, at nearly 50%, followed by utilities, at 37%. The mix, which is global in scope but tilts to U.S. exposure significantly, consists of about 29 names, including Nextera Energy, Hubbell, and Entergy.
Overlaps & Gaps
From AI to EVs to nearshoring to decarbonization, each of these funds takes a similar and yet different approach to the electrification theme. When you overlap these three ETFs, you quickly find there are a lot of differences.
About one-third of ELFY overlaps with ZAP. Only about 20% does so with VOLT. And ZAP and VOLT have less than half of their portfolios in common.
3 Pictures Tell the Story
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