For two years now, infrastructure investments, including exchange traded funds, have been receiving increased attention. The iShares U.S. Infrastructure ETF (Cboe: IFRA) is a new way to play that theme. IFRA debuted earlier this month.
The iShares U.S. Infrastructure ETF tries to reflect the performance of the NYSE FactSet U.S. Infrastructure Index, which includes U.S. companies focused on infrastructure activities, according to a prospectus sheet.
Specifically, component holdings fall under one of the 95 infrastructure-related industries defined by FactSet Revere Business Industry Classification System. Each company is classified as either Category 1 or Category 2, where Category 1 companies are infrastructure enablers and Category 2 are infrastructure asset owners and operators. The index is all equally weighted.
Investors Await Trump Infrastructure Support
“Since President Trump was elected promising major investments in infrastructure, investors have eagerly awaited that to come to fruition, recognizing it could have a major impact if enacted thoughtfully,” said BlackRock in a recent note. “We still believe that the prospects of some sort of infrastructure package look positive. However, it is also important to consider the broader case for investing in infrastructure companies, and to understand the nuances of investing in the asset class.”
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IFRA’s category 1 infrastructure enablers include those in construction and engineering services, machineries and materials. Category 2 or infrastructure asset owners and operators are companies associated with traditional equity infrastructure investing, including those in energy transportation and storage, railroad transportation and utilities.
“A 2017 survey of institutional investors responsible for $7 trillion of assets found that 90.3% of asset owners intended to increase their investment in infrastructure over the next 3-5 years, an increase from 65% the previous year,” according to BlackRock.
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.
“A deteriorating public infrastructure system threatens the ongoing competitiveness and future economic growth of the U.S.,” said BlackRock. “However, the recognition across both sides of the aisle of the need for bold action provides grounds for optimism. Listed infrastructure equities provide a liquid way to seek both medium term capital appreciation as well as income streams in the long term. Institutional investors have long included infrastructure in their strategic asset allocations. Retail investors may want to consider doing the same.”
For more information on new fund products, visit our new ETFs category.