Infrastructure spending is seen as one of the rare nonpartisan issues politicians consider and with the U.S. economy on solid ground, the time appears right for the U.S. to improve and update obsolete infrastructure. Investors can get defensive with infrastructure by using exchange traded funds, such as the AGFiQ Global Infrastructure ETF (GLIF).
The AGFiQ Global Infrastructure ETF uses a multi-factor investment process to seek long-term capital appreciation by investing primarily in global equity securities in the infrastructure industry.
While he was campaigning, President Donald Trump’s pledge to spend $1 trillion shoring up U.S. infrastructure needs was seen as a potential catalyst for the related exchange traded funds. Still, it could take some time for infrastructure ETFs to see the full benefit of Trump’s still nascent infrastructure plans.
“After unconventional policy measures delivered sustained asset growth in the aftermath of the Great Financial Crisis (GFC), the market turbulence of late 2018 refocused investors on defensive strategies,” according to FTSE Russell research. “With that in mind, investors have been asking renewed questions about the investment features that are typically ascribed to infrastructure: high yield, defensive qualities, and inflation protection.”
GLIF: A Credible Income Idea
Infrastructure developments are typically large, long in duration and capital-intensive, carrying a high overall cost. Nevertheless, the projects compensate investors by including fairly predictable expenditures to maintain the asset, as well as regulated pricing that typically provides stable and reliable cash flows. Select investors have long enjoyed the unique characteristics of infrastructure to diversify equity risk exposure, generate income and hedge against long-term inflation
The cost of ignoring infrastructure needs is far higher and with a presidential election year looming, politicians could embrace the idea of more infrastructure spending, potentially boosting GLIF in the process. Historical data suggest infrastructure investments like GLIF can prove durable when markets decline.
“This resilience of infrastructure during the market distress is not the only evidence of their defensive qualities,” according to FTSE Russell. “The infrastructure index did not only outperform the corresponding wider equity index, but it did so with lower volatility, resulting in higher risk-adjusted returns.”
Home to utilities stocks, real estate investment trusts (REITs) and master limited partnerships (MLPs), among other assets, GLIF is also a credible income idea.
“The most striking manifestation of defensive behavior of infrastructure is found when comparing US Treasury bonds with the relative performance of infrastructure,” said FTSE Russell. “Infrastructure outperformed the wider market when the 10-year US bond yield fell, i.e. when the market seeks the safety of US Treasuries, bond prices rise.”
For more information on the infrastructure sector, visit our Infrastructure category.