Global infrastructure exchange traded funds may be a good way for investors to capture the a boom in global spending and to generate attractive yields.
Infrastructure spending is expected to rise to over $9 trillion per year by 2025, compared to $4 trillion in 2012, writes Joshua Duitz, senior portfolio manager at mutual fund provider Alpine Woods Capital Investors, for InvestmentNews. Over the next decade, total spending on transportation, power generation, telecommunications networks, public facilities and other infrastructure could top $78 trillion.
“While this building boom potentially will drive economic growth and job creation in many regions, it can have an equally powerful effect in building wealth for investors who make infrastructure a core holding in their portfolios,” Duitz said.
Fueling growth in the infrastructure sector, much of the expected growth in spending will come out of Asia-Pacific region where countries are trying to meet the rising needs of an emerging middle-class and increasing urbanization. Meanwhile, in more developed countries, like the U.S., aging airports, roads, bridges and power grids are in need of an upgrade.
Since most infrastructure projects are structured with specific revenue-generation components, the asset can provide attractive income-generating opportunities.
“Yield is produced by a relatively dependable stream of income from toll road concessions, water usage charges, airport landing fees, etc. This makes allocating to infrastructure funds a logical choice for investors who want to invest globally and yet also receive dividends or income,” Duitz added.
Investors interested in the infrastructure theme may consider a number of ETF options.
For instance, the iShares Global Infrastructure ETF (NYSEArca: IGF) and SPDR S&P Global Infrastructure ETF (NYSEArca: GII) track the S&P Global Infrastructure Index. The two ETFs include about a 40% tilt toward transportation infrastructure, along with electric utilities 22% and oil, gas & consumable fuel companies 18%. IGF has a 3.12% 12-month yield and GII has a 3.17% 12-month yield. [A Look At Infrastructure ETFs As IMF Urges Increased Spending]
Investors may also access the growing space through the recently launched Guggenheim High Income Infrastructure ETF (NYSEArca: GHII). GHII is the first yield-weighted infrastructure ETF to come to market. The new ETF tracks the S&P High Income Infrastructure Index, which is composed of the 50 highest-dividend-paying companies within the S&P Global BMI that operate in the energy, transportation, and utilities sectors. Specifically, utilities is 51.8% of GHII’s portfolio weight, followed by industrials 27.2% and energy 21.0%. The ETF has a 4.75% 30-day SEC yield. [Why Consider a Global Infrastructure ETF Position]
Additionally, ETF investors who are wary of additional currency risks can also take a look at the recently launched Deutsche X-trackers S&P Hedged Global Infrastructure ETF (NYSEArca: DBIF), which includes similar exposure to IGF and GII, except DBIF tries to mitigate the negative effects of falling foreign currencies. [A Global Infrastructure ETF With a Twist]
Potential investors should also be aware that the GHII and DBIF are still relatively small, so use limit orders to better control trades.
For more information on the infrastructure space, visit our infrastructure category.
Max Chen contributed to this article.