Infrastructure investments, such as exchange traded funds like the Global X U.S. Infrastructure Development ETF (Cboe: PAVE), are believed to benefit from increased government spending. That thesis may finally be coming to fruition.
PAVE tries to reflect the performance of the Indxx U.S. Infrastructure Development Index, which is comprised of companies focused on domestic infrastructure development, including those involved in construction and engineering; production of infrastructure raw materials, composites and products; industrial transportation; and producers/distributors of heavy construction equipment.
“While funding limitations have historically weighed on demand, the outlook should improve,” said Morningstar in a note out Friday. “First, midterm election results should ultimately boost funding at the national, state, and local levels. Until then, the FAST Act will continue to provide near-term funding support, as the Highway Trust Fund has enough funding to cover large outlays through 2021.”
Infrastructure And Politics
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.
“Even though infrastructure demand has been strong for decades, construction activity has remained below even maintenance levels,” said Morningstar. “This has led to system degradation over the years. Although this reality is acknowledged by Republicans and Democrats alike, limited funding continues to be a problem.”