Following the bursting of two damns in Michigan, climate change and its intersection with infrastructure needs is again in focus. That could reignite talk about infrastructure investment ideas, including the FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA).
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.
“The collapse of two Michigan dams on Tuesday following heavy rainfall has triggered concerns over how precarious dam infrastructure in the U.S. is inadequate to handle severe weather,” reports CNBC.
“Aging dams will increasingly fail as climate change makes extreme precipitation and storms more frequent and intense, scientists warn.”
Calls For Infrastructure Mount
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 a 3-month average daily trending volume 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. Additionally, the fund is rebalanced annually.
Like roads and bridges, among other areas, damns underscore the dire state of U.S. infrastructure.
“The 91,000 dams in the U.S. earned a ‘D’ for safety in a 2017 report from the American Society of Civil Engineers. The ASCE estimated the cost of fixing up the dams whose failure would threaten lives at roughly $45 billion, and the cost of fixing all aging dams at over $64 billion.,” according to CNBC.
The strong, consistent demand for infrastructure has delivered stable, repeatable cash flows to investors. Meanwhile, population growth, aging infrastructure, and constrained government budgets are creating opportunities for the private sector. The high cost of entering the infrastructure business also limits competition or provides a wide economic moat for those already in the field.
“In Michigan, which is under a state of emergency after the two dam breaches, the average age of the state’s total 1,059 dams is 74 years old, older than the typical 50-year designed life span. Just over 170 of those dams are labeled as high hazard potential — meaning a collapse will result in a loss of life,” reports CNBC.
Michigan is one example, but the bottom line is damns need shoring up and infrastructure needs to be political priority.
For more on multi-asset strategies, please visit our Multi-Asset Channel.
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.