Historically, investments in infrastructure have allowed investors to diversify their portfolios and hedge against inflation. While the role of infrastructure stocks remains as valid as ever, these projects have also evolved over time, covering newer technologies like cellular towers and broadband networks.
In the upcoming webcast, Infrastructure: A New Take on an Evergreen Concept, Christopher Huemmer, Senior Investment Strategist, Northern Trust Asset Management, will offer a mechanism to invest in this type of modern infrastructure.
Specifically, infrastructure ETFs, such as the FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA), offer investors sound fundamentals and above-average dividend yields, making the asset class appealing for any market environment. NFRA tries to reflect the performance of the STOXX Global Broad Infrastructure Index, which identifies equities that derive the majority of revenue from infrastructure business, providing exposure to not only infrastructure sectors, but non-traditional ones as well.
Investors who want to access global infrastructure investments through a liquid vehicle may consider NFRA as a solid alternative to the long lock-up periods and high initial investments associated with direct infrastructure exposure.
NFRA’s index focuses on long-lived assets in industries with very high barriers to entry, with at least 50% of their revenue from key sectors with 3-month average daily trending volumes of at least $1 million. The portfolio is weighted based on a free-float market cap with certain constraints to limit exposure in any one security, sub-sector, or country. The fund is rebalanced annually.
“We believe that the FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA) provides investors broader access to the evolving global infrastructure market. At the same time, it offers diversification across multiple dimensions to help mitigate the risks common to infrastructure investments. This approach is designed to offer a combination of potential risk mitigation and true global diversification that can help investors pursue their goals of portfolio diversification and income potential, along with potential protection against the risk of long-term inflation,” according to FlexShares.
The strategy could be particularly useful at a time when the United States must ramp up infrastructure spending after years of lagging behind in the sector, as compared to other developed economies.
One of the advantages of infrastructure is that regardless of what the global economy is doing, it’s a necessity. The industry is less prone to the cyclical movements of the economy, which makes it a viable alternative to other defensive investing plays.
Furthermore, infrastructure exposure could help protect against long-term inflationary risks since most infrastructure operators pass through the cost increases of inflation to users per long-term contracts that tend to underpin their infrastructure business models.
Financial advisors who are interested in learning more about infrastructure investments can register for the Monday, July 12 webcast here.