A Defensive Sector ETF with Attractive Yield Opportunities | ETF Trends

Investors seeking a more stable asset category may want to take a look at infrastructure stocks and sector-related exchange traded funds.

“Good infrastructure products are unlikely to wildly outperform equity markets – but nor are they likely to create serious losses in a portion of investors’ portfolios that should be defensive,” writes Thomas Hoops, executive vice president and head of business development at Legg Mason Global Asset Management, for InvestmentNews. “They can be highly attractive to investors seeking solid income from relatively lower-risk investments.”

Hoops argues that infrastructure investments can help provide lower volatility than traditional growth assets, generate attractive yields and hedge against inflation.

The infrastructure asset category is also a good portfolio diversifier as the investment is relatively uncorrelated to the equity markets. In tough and good times, people will still utilize the basic infrastructures of an well-functioning economy, which also makes infrastructure stocks a decent defensive play.

“Given the resilience of the underlying assets, these securities could help mitigate the effects of broader market pullbacks,” Hoops said.

Infrastructure products are easy to understand. Hoops explains that companies make large upfront capital investments to build these assets and the owner generates a profit through charging user fees. Consequently, cash profit margins may be high and stable over time, which translates to dependable dividend streams for investors.

However, investors seeking rapid growth will be disappointed as these infrastructure investments provide more slow and steady returns.