3 Infrastructure ETFs to Harness the Spending Boom
The Senate recently passed a roughly $1 trillion infrastructure bill. If the House follows suit, these infrastructure ETFs could benefit.
Slowly but surely, a massive overhaul of the nation's infrastructure is closing in on becoming reality.
While President Joe Biden's $2.25 trillion American Jobs Plan didn't have the legs to make it through Congress, a $1 trillion compromise plan has passed the Senate. Investors looking for ways to capitalize on this new proposal might want to set their own sights on infrastructure ETFs, which could benefit from this historic spending initiative.
"If passed by the full Congress and signed by President Biden, the law would result in investments of approximately $260 billion in transportation and transit, $100 billion in digital infrastructure and infrastructure reliance, $90 billion in clean technologies, and $85 billion in water infrastructure, according to analysis by asset manager Global X," says Todd Rosenbluth, CFRA's Head of ETF & Mutual Fund Research. "The diversity of the potential corporate beneficiaries highlights the merits of looking to ETFs."
To be clear, it's important for investors to understand that when you're talking about infrastructure stocks, you're not talking about a single sector in itself. It's a general term referring to a combination of systems related to a business, nation or region. You'll actually find numerous sectors within infrastructure ETFs, including industrials, basic materials, energy and communication services.
"Infrastructure spending will impact many companies, providing cross-sector thematic ETFs with an opportunity to shine," says Todd Rosenbluth, CFRA's Head of ETF & Mutual Fund Research.
Today, we'll take a look at three of the largest infrastructure ETFs on the market that could get a boost from this compromise spending bill. All of these are ETFs that Rosenbluth likes for potential growth opportunities both in the U.S. and around the globe.
Data is as of Aug. 16. Yields represent the trailing 12-month yield, which is a standard measure for equity funds.
iShares Global Infrastructure ETF
- Assets under management: $3.1 billion
- Dividend yield: 2.7%
- Expenses: 0.43%, or $43 for every $10,000 invested
The iShares Global Infrastructure ETF (IGF, $46.49) is a straightforward infrastructure-themed ETF whose holdings include shares of transportation, communication infrastructure, water and electricity services companies around the world.
"As the ETF's name suggests, this is a global strategy with just 34% in U.S. companies and double-digit exposure to Canada and Australia, with smaller stakes in China, Italy and Spain," Rosenbluth said in an April note.
Thus, shareholders have an ETF that can prove beneficial for infrastructure spending in the U.S., but also for reopening global economies in a post-Covid world.
The IGF portfolio is made up of three sectors: utilities, industrials and energy. The significant exposure to utilities here illustrates well how infrastructure impacts much more than just industrial stocks. Utilities make up 42% of assets, which is more than its 36% in the industrial sector (primarily transports).
IGF's exposure to non-U.S. stocks and to sectors outside of industrials and materials can provide greater diversification than more concentrated infrastructure ETFs. But the degree of direct benefit from the pending infrastructure bill could prove to be less.
IGF currently garners a respectable three of five stars from CFRA.
Global X U.S. Infrastructure Development ETF
- Assets under management: $4.4 billion
- Dividend yield: 0.4%
- Expenses: 0.47%
Global X U.S. Infrastructure Development ETF (PAVE, $27.44) is an exchange-traded fund that offers concentrated exposure to U.S.-listed infrastructure stocks. It's also the largest infrastructure ETF on the market, courtesy of $3.7 billion in inflows this year amid optimism on a spending bill.
PAVE's U.S.-focused portfolio is an opportunistic way to capitalize on the Bipartisan Infrastructure Investment and Jobs Act, given its focus on companies involved in construction, raw materials and industrial transportation.
"PAVE invests in more cyclical sectors than many of its peers," Rosenbluth says. "At the end of July, PAVE had 71% of assets in industrials and 22% in materials, with some of the remainder in consumer discretionary and information technology stocks."
Top holdings at the moment include steelmaker Nucor (NUE) at 4% of assets, as well as Eaton (ETN), Trane Technologies (TT) and Deere (DE) at more than 3% each.
Adding to the allure of this infrastructure ETF, CFRA gives the fund its highest rating of five stars.
FlexShares Stoxx Global Broad Infrastructure Index Fund
- Assets under management: $2.9 billion
- Dividend yield: 2.2%
- Expenses: 0.47%
FlexShares Stoxx Global Broad Infrastructure Index Fund (NFRA, $58.55) is an ETF that offers a balance of U.S. and non-U.S. infrastructure stocks, providing investors with exposure to publicly traded developed and emerging-market companies.
A distinguishing feature of this infrastructure ETF is its outsized portfolio allocation to the communication services sector, which comprises nearly 30% of the fund's holdings. This sector focus could prove to be beneficial, should the massive government-approved cash infusion get the green light from Congress.
"The Biden infrastructure proposal includes spending to upgrade broadband capabilities across the U.S. that would be a boost for some communications companies," Rosenbluth says.
Driving the communications sector weightings in NFRA are holdings such as Comcast (CMCSA) and Verizon (VZ). Other sector exposure for NFRA includes energy at about 30%, transportation at 22% and utilities at 8%.
Like with IGF, NFRA earns three of five stars from CFRA.
Learn more about NFRA at the FlexShares provider site.
