As various countries increase spending to expand and repair infrastructure projects, investors can tap into the potential growth through a diversified international sector-related exchange traded fund strategy based on the expertise of a dedicated actively managed infrastructure team.
The recently launched Legg Mason Global Infrastructure ETF (NasdaqGM: INFR) will try to reflect the performance of the RARE Global Infrastructure Index, which is comprised of global infrastructure-related equities. The underlying index will also screen for other factors, including a liquidity filter for companies with a minimum of $500 million market capitalization and a 1-year average daily value traded of $2 million, along with those ranked from the highest dividend yield and cash flow yield. Components are then weighted by market capitalization and free float, RARE exposure score, price volatility and region.
“RARE’s mission is to provide our clients with portfolios of high-quality infrastructure assets with the goal of delivering strong absolute returns over an investment cycle,” according to RARE.
The smart-beta index-based ETF utilizes the actively managed style based off RARE, an investment management company focused on global listed infrastructure. Legg Mason acquired RARE Infrastructure Limited back in July 2015. The team also helps manage Legg Mason’s RARE Global Infrastructure Value Fund (RGIVX).
“Legg Mason is a multi-affiliate model,” Daniel Lifshey, V.P. and ETF Marketing Manager at Legg Mason, told ETF Trends in a call. “We expanded where the ETF suite made sense. RARE was a logical place to go.”
Supporting the infrastructure outlook, the RARE team argued that increased spending will help support future growth. For instance, President-elect Donald Trump has promised $1 trillion in infrastructure spending as he steps into office. Meanwhile, other economies are also expanding their infrastructure or repairing aging structures.
“We believe there will be astronomical spending over the next 20 to 30 years,” Dave Wahl, Vice President and Senior Portfolio Specialist at Rare Infrastructure, told ETF Trends in a call. “Globally, Australia and Canada are among the fore runners of infrastructure spending.”
INFR is seen as a way to bring institutional infrastructure investments to financial advisors and retail investors, Wahl said.
Wahl explained that the underlying holdings are comprised of a middle ground between conservative, long-term government-backed projects and high risk competitive assets like energy and exploration. Additionally, the fund strategy is geared toward CPI and leveraged to GDP as a way to pick out areas from economically sensitive sectors and more regulated or defensive sectors.
The underlying portfolio will include essential assets for a functioning economy, like airports, rails, roads, electrical and gas lines, water, sewage, communications and social services.
As of November 30, 2016, the underlying index’s weights include electric utilities 28.6%, railroads 20.2%, oil & gas storage & transportation 17.5%, multi-utilities 11.9%, highways & railtracks 8.4%, airport services 6.5%, cable & satellite 2.4%, water utilities 1.8% and gas utilities 1.8%.
The ETF also provides international exposure, with country weights including U.S. 37.9%, Canada 12.9%, Australia 11.0%, U.K. 6.8%, Spain 6.5%, Japan 5.9%, France 4.6%, Italy 3.8%, Hong Kong 2.6%, Malaysia 1.0%, Switzerland 1.0%, Mexico 0.8%, China 0.7% and Chile 0.7%.
For more information on the infrastructure sector, visit our infrastructure category.