Rapid advancements by artificial intelligence (AI) and soaring demand for that technology are creating a host of infrastructure demands. With that comes a set of new, potentially compelling investment opportunities.
For many investors, an ETF is the best way to play the increasingly interesting AI/infrastructure union. Enter the ALPS Electrification Infrastructure ETF (ELFY). ELFY, which debuted in April, follows the Ladenburg Thalmann Electrification Infrastructure Index. The rookie ETF focuses on companies with market values of at least $5 billion — a qualifier that could serve to reduce some of the risk associated with what’s still a novel investment concept.
Another advantage offered by ELFY is that it broadens the infrastructure opportunity set — one long reserved for well-heeled investors and participants in private markets — at a time when investor interest is surging. That surge is due in large part to innovative technologies such as AI and clean energy, among others.
“The broadening seems fitting, as infrastructure itself is central to everyday life ― from the utilities providing fuel to heat our homes, to the towers transmitting data for our mobile devices and the data centers powering the proliferation of AI,” according to BlackRock.
ELFY Jazzes Up Sleepy Sector Exposure
In some respects, ELFY is comparable to legacy infrastructure ETFs. For example, the ALPS fund allocates two-thirds of its weight to utilities and industrial stocks. Those aren’t glamorous sectors, but they’ve long been lynchpins of old guard infrastructure funds.
However, many of those old guard ETFs aren’t focusing on the industrial and utilities names that have significant exposure to new wave technologies. ELFY solves that problem, providing investors with an infrastructure mousetrap that could deliver better long-term returns.
“Among them: utilities providing electricity, water and gas for heating; oil and gas pipelines transporting fuel for our cars; airports, toll roads and railroads that are the gateways to business and leisure travel; tower companies that transmit our mobile data; and the data centers generating AI,” added BlackRock.
Proving that there’s a rock-solid case for the newly minted ELFY, Balfe Morrison, head of listed infrastructure strategies within BlackRock Fundamental Equities, noted that AI is in fact an “accelerator” for infrastructure investment. According to Morrison, it’s sensible for investors that are constructive on AI to hold similar views on infrastructure. In fact, infrastructure names with AI ties could prove durable even if AI-related earnings or spending suddenly retreat.
“So there is not going to be any earnings cliff or big earnings hit if the AI story is not what we all think it is,” observed Morrison.
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