Infrastructure ETFs for the Long Haul
October 4th 2012 at 7:11am by Tom Lydon
The infrastructure sector is a defensive play that helps fight inflation and market volatility. Exchange traded funds that track this area of the market help give exposure to growth opportunities while cutting down the risk factor of a single stock.
“Sustainable economic growth necessitates continued investment in new infrastructure facilities. As emerging nations continue to grow at breakneck speeds, their newly found higher incomes will lead to increased demand for a better quality of life. Better environmental services, high-speed communication and new transportation beyond the city centers will need to be built,” Aaron Levitt for Investopedia wrote.
The new Chinese infrastructure spending plan outlined $157 billion, or 1 trillion yuan, to be invested into modernizing and upgrading the landscape. Likewise, Germany and Japan are expected to be investing capital into renewable energy, with nuclear sources getting phased out. John Wasik for Reuters reports that developing nations like India and Brazil are upgrading electrical, roads and telephone systems. [Infrastructure ETFs: The U.S. Isn't Where it's At]
“This long-term, global building boom translates into more business for steelmakers, electrical equipment/telecom manufacturers, road builders and public works systems and engineering firms,” Wasik wrote.
EG Shares China Infrastructure ETF (NYSEArca: CHXX) gives targeted exposure to companies related to China’s infrastructure spending. The dividend yield is 2.37% , but the $13 million in assets under management can make the fund ill-liquid. There are other funds that represent overseas markets and targeted infrastructure spending such as the EG Shares Brazil Infrastructure (NYSEArca: BRXX) and the EG Shares India Infrastructure ETF (NYSEArca: INXX). [ETF Chart of the Day: Infrastructure Funds]
In the U.S., part of Obama’s spending plan incorporates investment in fixing older bridges, roads and schools and upgrading out-of-date systems. Most of his 2009 stimulus package capital has been spent and invested, however, there should be increased spending in these areas. Budgetary and austerity problems are taking precedence over spending on renovations for outdated systems, so private investment is more important than ever to get these types of projects going.[Global Infrastructure ETFs Build Up a Portfolio]
The infrastructure ETFs are useful for long term investment and can give a portfolio stability and growth potential over time.
- iShares S&P Emerging Markets Infrastructure Index Fund (NYSEArca: EMIF) Focuses on utilities and industrial companies
- iShares S&P Infrastructure Index ETF (NYSEArca: IGF) Focuses in on large utility and shipping companies
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.