ELTIF vs ETFThe best of both worlds?

ELTIF vs. ETF: Why the comparison becomes relevant now

German investors now hold around 500 billion euros in exchange traded index funds, abbreviated to ETFs.² The concept has established itself because it has solved a real problem: For a long time, broadly diversified investing was either too expensive or too complicated for retail investors. ETFs have changed this, with low costs and access that is already possible with small amounts via a savings plan.

But what many perceive as broad dispersion turns out to be concentration on closer inspection. The shift came incrementally, driven by the rise of fewer technology corporations whose stock markets have grown faster than whole economies. The MSCI World, which has become the embodiment of the ETF in Germany, bears the name of the global economy, but today mainly represents the US technology sector: The US share stands at 72 percent , in the 2000s it was still 50 to 60 percent. The ten largest of around 1,300 companies in the index alone account for around 27 percent of the total value.³

How vulnerable this weighting is becomes clear whenever the few stocks at the top come under pressure. A decline in the share price of a handful of US technology companies is enough to significantly detract from the entire index. The alleged spread across dozens of countries and industries hardly cushions this. Especially now that US economic and trade policy has become more unpredictable, this concentration is weighing even heavier.

ELTIF vs. ETF using the example of renewable energies

ELTIFs allow for off-exchange investments directly into the real economy. Infrastructure and renewable energies are particularly popular in Germany. Themes accessible as both ETFs and ELTIFs. However, the two routes lead to fundamentally different results in the custody account.

Renewable energy ETFs do not own wind farms or solar plants. They hold shares of companies that are active in the industry, such as turbine manufacturers or utilities with a growing share of green electricity. Their prices react to interest rate decisions and stock market sentiment. Whether the plants in the background reliably produce electricity hardly matters for the daily price.

The industry itself has delivered in recent years. Worldwide, more new wind and solar capacity was added to the grid than in any comparable period before, driven by billions of dollars in expansion programmes. And the demand for clean electricity continues to increase with every data centre and heat pump.

However, the stock market received little of this. According to the analysis company Morningstar, exchange-traded renewable energy funds lost around 46 percent of their value cumulatively within three years.⁴ Those who invested in this category at the beginning of 2022 saw almost half of their investment disappear by spring 2025. With around 28 percent annualised volatility, the fluctuations were about twice as high as in the broad equity market.⁵ Investments went well, but equities did not.

In this environment, interest is growing in investments whose returns do not depend on daily prices. Institutional investors have been relying directly on infrastructure and renewable energies as tangible assets for decades. For retail investors, this access was blocked for a long time. The ELTIF has opened it and thus brings an asset class into the private custody account that ETFs do not cover due to their design.

klimaVest shows what this can mean in practice. With a fund volume of around 1.8 billion billion euros, the fund is the largest ELTIF for private investors in Europe ⁶ and is one of the few funds of this type that can already demonstrate a track record of several years. klimaVest invests directly in wind and solar farms as well as electricity grids and has achieved a positive performance in each financial year since its launch in October 2020, most recently 3.0 percent.⁷ While renewable energy ETFs fluctuated between euphoria and sell-off, klimaVest’s performance remained comparatively stable.

Where ELTIFs and ETFs fundamentally differ

What’s in the fund: Stock market vs. real economy

An ETF replicates an equity or bond index. Investors thus acquire shares in listed companies or debt securities whose income arises from price movements and dividends or interest. Both variables are formed on the capital market and follow its fluctuations. When buying on the stock exchange, existing shares change owners, the money flows to the seller, not to the companies in the index.

ELTIFs, on the other hand, raise capital and typically invest it directly in real assets, such as infrastructure, wind and solar farms, investments or lending to unlisted companies in the real economy. The income arises from the ongoing operation of these plants, from the sale of electricity, grid charges, rental income, interest or sales of the assets. Investors thus participate more in the operational performance of real investments and their comparatively predictable cash flows and less in the daily market valuations, as they determine the stock market price of an ETF.

Active vs. passive: Why cost structures differ

Passive index tracking is the principle behind every ETF. It is not the fund manager who decides which securities are included in the fund, but rather the rules of the index. Human judgement does not play a role in this, which ultimately makes ETFs so favourable, as operations can be largely automated.

An ELTIF requires real management, as it involves dealing with real assets. The fund management must anticipate market developments, such as which generation technologies will be in demand in ten years’ time or when the right time is to expand the portfolio with, for example, electricity grids or storage. It inspects and purchases wind farms, negotiates power purchase agreements, manages ongoing operations and decides on modernisations. The actual work begins long before the acquisition of the assets and is not completed with this, which is also reflected in the higher running costs.

Liquidity: Immediately actionable vs. consciously long-term

ETF shares can be bought and sold in seconds every trading day. This liquidity is one of the greatest advantages of the product, making it as easy to enter and exit as a share.

At the same time, it has a flip side that is rarely mentioned on the leaflet. In crash phases, retail investors are proven to sell at the worst possible time. The analysis company DALBAR quantified the behaviour-related return lag of retail investors compared to the S&P 500 at a good eight percentage points in 2024.6 The freedom to be able to trade at any time is thus becoming an expensive invitation to exit exactly when holding would be the better decision.

ELTIFs tie the return to fixed windows and deadlines that vary from product to product. Capital is not always available, which is a real obstacle for investors who need to access their money in the short term.

However, many ELTIFs offer significantly more flexibility than traditional closed-end funds, which often tie up capital over the entire term. They are considered semi-liquid: Redemptions are possible on fixed dates, often quarterly, semi-annually or annually. An ELTIF is therefore not very illiquid, but not as free as an ETF.

However, this restriction also has a protective effect. It makes impulsive reallocation difficult and gives the fund management the necessary stabilityto manage long-term tangible assets without having to sell under the pressure of daily cash outflows.

Price setting: Real-time price vs. expert assessment

The price of an ETF can be read on the screen at any time, as it is created by supply and demand on the stock exchange and thus reflects in real time how the market is currently valuing the companies included. This is a clear transparency benefit.

However, it also means that the value shown on nervous days tells more about the mood in the market than about the actual substance of the companies behind it. What the ETF is worth at 10 a.m. can look significantly different at 4 p.m. without the underlying business models having changed.

The Net Asset Value (NAV) of an ELTIF is calculated less frequently - often quarterly, for some funds monthly. The valuation is based on expert opinions and model calculations that reflect the condition of the real investments in the portfolio. This provides less real-time information, but also less noise. A wind farm does not change its value every minute, and a valuation that takes this into account may reflect economic reality more accurately than a stock market price.

At the same time, this procedure carries a risk, as smoothed valuation series can obscure actual losses in value or make them visible with a delay. Investors should be aware that a stable NAV does not necessarily mean that there are no fluctuations, but that they are measured differently.

Access and barriers to entry: Savings plan vs. suitability check

ETFs are among the most accessible investment products. A savings plan can be set up with most brokers in a matter of minutes, often starting from just a few euros a month. Advice is not mandatory, prior knowledge is not checked. This low threshold has enabled millions of people to enter the capital market and is a key reason for the asset class’s growth.

The threshold is higher for ELTIFs. Many funds require a minimum investment, the amount of which varies from product to product, and require investment advice with a suitability check before purchase. However, the EU ELTIF 2.0 reform, which has been applicable since January 2024, has significantly facilitated access. The legal minimum investment of 10,000 euros and the asset limit of ten percent have been omitted as legal requirements. Individual providers voluntarily maintain comparable thresholds, first working on savings plan models.

Overall, the ELTIF vehicle also surprises positively in terms of accessibility:

• Especially compared to classic closed-end funds that tie up capital to a single project - often over ten to twenty years without the possibility of early exit and with very high minimum investments.
• But also compared to ETFs, because ETFs only hold what is traded on the stock exchange.

Infrastructure such as investments in electricity grids or lending to SMEs do not appear in any equity index. Only the ELTIF makes this investment universe accessible to retail investors. 

Return and risk: Market return vs. operating income

ETFs deliver the return of the market they represent, less low costs. In the long-term, global equity indices’ annualised returns are in the high single-digit range. In return, investors bear the full volatility: In 2022, the MSCI World lost around 13 percent (a good 18 in US dollars), up double-digit in previous years. This is the mechanism behind the equity market return - if you want to take the good years with you, you have to endure the bad ones. The five-year volatility of the MSCI World was most recently around 15 percent per year.⁸

For ELTIFs, the answer is less uniform, as there are very different risk profiles behind the same label:

• Infrastructure ELTIFs with renewable energies move in the moderate single-digit range of target returns and mostly derive their income from contractually hedged cash flows.
• Private equity ELTIFs advertise with target returns of 9 to 14 percent, but carry a significantly higher default risk.
• Private debt ELTIFs are between 5 and 7.5 percent.⁶

Caution is warranted with regard to the high target returns. To date, no ELTIF has demonstrated double-digit returns in a multi-year, audited track record for retail investors. The majority of these funds were launched in 2024 or 2025 and have not yet gone through a market phase where the promises could be measured.  

How big the gap can be between sales prospectuses and reality was demonstrated by a case that the Stiftung Warentest addressed: An ELTIF with a solar focus reported an annual return of 15.8% at moderate risk in the key information document. When asked, the provider itself stated 5 to 6 percent over the entire term as realistic.⁹

Against this background, experts see ELTIFs as a sensible addition, not as a core component. Scope analyst Sonja Knorr names 10 percent of the portfolio as a sensible upper limit.¹ In this dosage, an ELTIF with stable tangible income can balance a highly equity-based custody account without having to give up the long-term growth dynamics of ETFs.

Common features of ELTIFs and ETFs: Why both belong in the custody account

As different as ELTIFs and ETFs function, the basic idea behind them is similar:

• ETFs emerged because broadly diversified investing in the equity market was too expensive and too complicated for retail investors for a long time.
• ELTIFs because investments in the real economy were simply not open to retail investors.

Both instruments have the same mission, namely to make an asset class accessible that it was not before. And both do this as regulated fund products with transparency obligations and anchored investor protection.

They also share the principle of risk diversification, only in different worlds. A MSCI World ETF distributes the capital to around 1,300 companies instead of a single share. The ELTIF klimaVest has 43 wind and solar farms, electricity grids in six European countries. The mechanism is different (index rule vs active management), but the objective is the same: Diversification instead of cluster risk.

After all, both can be booked into a regular custody account, side by side as components of a viable overall strategy. Neither product claims to be the complete answer. An ETF maps the stock market world, while an ELTIF taps into the real economy with returns that arise independently of daily prices. It is only together that a portfolio is created that covers both sides.