Challenges Ahead, but This Infrastructure ETF Remains Important

The coronavirus is presenting scores of challenges for infrastructure projects, but those risks merely reiterate the potential value and utility of strategies such as the ProShares DJ Brookfield Global Infrastructure ETF (NYSEArca: TOLZ).

The ProShares DJ Brookfield Global Infrastructure ETF provides exposure to airports, toll roads, ports, communications, electricity distribution, oil and gas storage, and transport, and water in both developed and emerging markets. The underlying index also excludes companies that supply services such as construction and engineering to the infrastructure industry.

The COVID-19 pandemic is threatening the completion of important projects around the world.

“Infrastructure projects face new challenges as a result of the coronavirus pandemic, which has the potential to cause completion delays and alter the finances of projects under construction,” Fitch Ratings says. “Delays due to project adaptations and other costs, coronavirus-related work stoppages, and counterparty non-performance may negatively affect project credit quality.”

The infrastructure category has also historically offered higher dividend yields than global fixed-income and global equities, along with greater predictability of long-term cash flows. TOLZ may be able to capture the growing demands of economic development that are driving more funding into transport, power, and other systems.

Time for TOLZ

One of the advantages of infrastructure is that regardless of what the global economy is doing, it’s a necessity. Furthermore, it’s less prone to the cyclical movements of the economy, which makes it a viable alternative as a defensive play.

“Social distancing and other construction site health measures and supply chain disruptions, which increase costs and reduce productivity, will further pressure margins in an already competitive sector,” according to Fitch. “Government-forced shutdowns of non-essential construction works have resulted in incremental delays and costs for the demobilization of projects at construction sites. Many projects maintain security in the form of payment retention and LOC that provide some cushion in the event of a delay.”

With the White House looking to unleash a massive wave of stimulus onto the U.S. economy and in an effort save jobs numbers from sliding, infrastructure could be in style as the coronavirus situation, hopefully, eases soon. Some data points confirm that some of the stimulus packages should be going toward infrastructure.

“Some project parties are accelerating construction works such as airports, toll roads, and schools, taking advantage of low use, reduced traffic flows, and vacated space,” notes Fitch.

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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.