A Diversification Approach to EV Investing | ETF Trends

Diversification has become a major focus for advisors and investors this year as they seek returns and performance in an environment of extended volatility and challenge for equities and bonds within the U.S. Investing in electric vehicles can provide opportunities to seek performance that is less correlated to broader global indexes, as well as alpha potential looking ahead, according to KraneShares.

“We believe the EV ecosystem continues to be one of the most promising long-term investment themes globally,” wrote KraneShares in a recent paper.

Demand for electric vehicles is expected to grow steadily in the coming months and years despite rising rates and economic slowdown, due in part to the supportive government policies in the U.S. and countries abroad as well as growing consumer adoption. Continued innovations happening within the space are driving prices down, making EVs increasingly competitive with internal combustion engine cars, particularly in an environment of higher oil prices.

The KraneShares Electric Vehicles and Future Mobility ETF (NYSE: KARS) offers a good solution for investors looking to capture the potential growth of major EV producers globally and provides diversification potential beyond its peers.

KARS measures the performance of the Bloomberg Electric Vehicles Index, which tracks the industry holistically, including exposure to electric vehicle manufacturers, electric vehicle components, batteries, hydrogen fuel cells, and the raw materials utilized in the synthesis of producing parts for electric vehicles.

The index has exhibited consistently lower correlation to the major global indexes over the last three years, as well as “attractive upside and downside capture ratios,” KraneShares explained.

Image source: KraneShares

“The index’s low overlap with the S&P 500 and MSCI ACWI makes the electric vehicle investment opportunity, in our opinion, an adequate thematic exposure with the potential to shield portfolios during systematic downturns,” KraneShares wrote.

The index has strict qualification criteria. Companies must be part of the Bloomberg World Equity Aggregate Index, have a minimum free-float market cap of $500 million, and have a 90-day average daily traded value of $5 million.

KARS invests in many familiar car companies such as GM, Tesla, Ford, Mercedes-Benz, BMW, and major Chinese EV manufacturers such as Li Auto, Nio, and BYD, some of the biggest companies in the global electric vehicle industry. The EV global ecosystem has strong potential to offer diversified alpha looking ahead due to its “unique growth drivers” according to KraneShares.

Image source: KraneShares

The ETF has an expense ratio of 0.70%.

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