AIPO: A High-Volatility Thematic Bet for Portfolio Allocation

AIPO is a concentrated, high-beta thematic fund built for investors seeking systematic exposure to a powerful structural demand thesis. Its core mandate is clear: under normal circumstances, at least 80% of the fund's net assets will be invested in securities of AI & Power Infrastructure Companies. This non-diversified structure means the fund is a pure-play bet on the intertwined growth of artificial intelligence and the power infrastructure that fuels it.

The investment case rests on two converging forces. First, the market capitalization of AI-related firms in the S&P 500 has grown by around USD 12 trillion since 2022, reflecting the technology's transformation from academic pursuit to a trillion-dollar industry. Second, this AI expansion is driving a surge in electricity demand, a trend that is forecast to continue. Global electricity demand is set to increase by an average annual 3.3% in 2025, with the United States seeing particularly strong growth driven by expanding data centers. This creates a virtuous cycle where AI growth demands more power, and reliable power is essential for further AI development.

For a portfolio manager, AIPO offers a way to capture this thematic alpha. It provides a single instrument to gain exposure to a structural shift, potentially enhancing risk-adjusted returns if the thesis plays out. However, its concentrated nature is the central risk. By focusing almost exclusively on this one theme, the fund inherits the volatility and idiosyncratic risks of both the AI and power infrastructure sectors. This creates a significant concentration risk that must be carefully managed.

The bottom line is that AIPO is not a core holding for most portfolios. Its role is tactical, serving as a thematic overlay for investors who have already sized their exposure to the AI/power thesis and are willing to accept the associated volatility. Integrating it requires discipline to avoid unintended concentration, ensuring it complements rather than overwhelms the broader portfolio.

Risk-Adjusted Return Profile and Systematic Exposure

The fund's risk profile is defined by its concentrated, high-beta structure. Since its launch in July 2025, AIPO has delivered a 6.69% year-to-date return, underperforming the S&P 500's 10.5% return over the same period. This divergence highlights the thematic fund's volatility relative to a broad market benchmark. The portfolio's high concentration amplifies this risk: 51% of assets are in the top 10 holdings and 61% in the top 15. This lack of diversification increases idiosyncratic risk, making the fund's performance more susceptible to the fortunes of a few large companies within the AI and power infrastructure theme.

Systematic risk is quantified by its volatility metrics. AIPO exhibits a beta of 2.97 against the S&P 500, meaning it is nearly three times as volatile as the broad market. This high beta, combined with its non-diversified mandate, translates into significant drawdown potential. The fund has experienced a maximum drawdown of -9.21% since inception, a level of downside risk that is notably higher than a typical diversified equity fund.

For a risk-conscious portfolio, these characteristics present a clear trade-off. The fund's high volatility and concentration mean it is not a source of stability. Its role must be tactical, serving as a leveraged bet on a specific theme rather than a core, risk-mitigating holding. The expense ratio of 0.69% is in the medium range, adding a steady cost to this already high-risk proposition. While the fund's volatility metrics are extreme, the key for portfolio construction is correlation. If the AI/power theme is expected to decouple from broader market cycles, the fund could offer diversification benefits. However, if its movements remain highly correlated with the tech sector, its inclusion would simply amplify existing portfolio risk without adding new alpha.

Portfolio Construction and Correlation Implications

The fund's extreme volatility and high expense ratio directly challenge its utility as a portfolio component. Its 5-day rolling volatility of 35.60% is a stark signal of short-term risk. This level is far above the S&P 500 and indicates that AIPO is a high-frequency, high-impact instrument. For a portfolio manager, this means the fund is likely to experience sharp, unpredictable swings that can disrupt tactical allocations and increase the need for active monitoring and rebalancing.

Compared to a similar growth-focused ETF like FTEC, AIPO's risk profile is worse. While both have nearly identical daily standard deviations, AIPO's maximum drawdown of -9.21% is significantly higher than FTEC's -34.95% drawdown. This suggests AIPO has experienced more severe and prolonged downturns relative to its own volatility, a concerning characteristic for a thematic fund. The higher expense ratio of 0.69% further erodes the net return potential. This persistent cost must be weighed against the fund's thematic premium, reducing the net risk-adjusted return for any given level of exposure.

The correlation implications are critical. AIPO has a high correlation of 0.85 with FTEC. This means the fund's movements are tightly linked to the broader information technology sector. For portfolio construction, this severely limits diversification benefits. Adding AIPO to a portfolio that already holds tech exposure is unlikely to reduce overall volatility; instead, it may amplify it. The fund acts as a leveraged bet on a specific sub-theme (AI & Power) within an already concentrated sector, increasing systematic risk rather than mitigating it.

The bottom line for portfolio construction is that AIPO's quantitative profile makes it a high-cost, high-volatility thematic overlay with limited diversification value. Its role is not to hedge or smooth returns, but to provide a concentrated, leveraged bet on a specific structural thesis. For this to be effective, it must be a deliberate tactical allocation, sized appropriately to avoid unintended concentration in a correlated sector. Any inclusion should be accompanied by a clear hedging strategy to manage the amplified drawdown risk.

Catalysts, Risks, and Forward-Looking Scenarios

The fund's future hinges on the pace of the AI-power infrastructure build-out. The primary catalyst is an acceleration in data center construction and, crucially, the approval of power interconnections. Deloitte analysis shows a massive backlog, with over 1,000 gigawatts of power capacity queued for interconnection in the U.S. grid. A regulatory or market shift that clears this bottleneck would directly benefit AIPO's holdings in construction and utility companies, providing a powerful tailwind for the theme.

The most significant risk is a slowdown in AI spending or a power grid bottleneck that constrains data center expansion, creating a negative feedback loop. Global AI spending is projected to reach $1.5 trillion in 2025, but this is a top-down forecast. If enterprise adoption stumbles or chip supply chains face constraints, the demand for data centers could decelerate. This would pressure the power infrastructure theme at its source, leading to a sharp re-rating of AIPO's holdings. The fund's concentration means it is highly sensitive to any disruption in this chain.

A key watchpoint is fund flows. Net AUM has increased by $131.7 million over the past year, indicating sustained thematic interest. However, this inflow also amplifies the fund's volatility. For a portfolio manager, this creates a tactical adjustment point. Sustained inflows can exacerbate upward momentum during a rally, while outflows during a downturn could accelerate selling pressure, magnifying drawdowns. Monitoring these flows is essential for timing and sizing any allocation.

From a portfolio construction perspective, the forward view requires a binary lens. The fund is positioned for a high-conviction, high-impact scenario where the AI-power nexus accelerates. If that unfolds, AIPO offers leveraged exposure to a structural shift. However, its extreme concentration and high correlation to broader tech mean it is not a hedge. Any tactical inclusion must be accompanied by a clear hedging strategy, such as options or short positions in broader indices, to manage the amplified downside risk. The fund is a bet on a specific, high-stakes outcome, not a diversified portfolio component.