Infrastructure has become a hot button issue once more. With the Biden Administration looking to spend big, the FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA) merits attention.
NFRA tries to reflect the performance of the STOXX Global Broad Infrastructure Index, which identifies equities that derive the majority of revenue from the infrastructure business, providing exposure to both traditional and non-traditional infrastructure sectors.
See also: Backed by Biden, More Infrastructure Will Help This ETF
“The need for federal infrastructure spending to improve aging U.S. infrastructure is stronger than ever as President Biden’s latest proposal emphasizes clean energy, reducing carbon emissions, and electrical grid modernization, explained CFRA Equity Analyst Elizabeth Vermillion,” writes CFRA Research’s Todd Rosenbluth, head of ETF & mutual fund research. “Within the Construction & Engineering sub-industry, CFRA expects surging demand from the focus on the electrical grid.”
NFRA’s Big Potential
Infrastructure exposure can also help protect against long-term inflationary risks since most infrastructure operators pass through the cost increases of inflation to users through the long-term contracts that typically underpin the infrastructure business models.
Infrastructure and clean energy ETFs have been the early beneficiaries of a Joe Biden presidency thus far. An infrastructure package that will incorporate climate change initiatives can especially help NFRA.
As President Joe Biden looks to update and upgrade the nation’s aging infrastructure, ETF investors can turn to targeted sector plays to capitalize on the spending spree.
“The Biden Administration and the Democratic-controlled Congress are likely to move forward with infrastructure spending impacting many sectors of the global stock market,” adds Rosenbluth. “While we expect demand for cross-sector thematic ETFs to pick up, we believe investors need to understand what makes some of the more popular funds unique.”
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. The fund is rebalanced annually.
Another benefit of NFRA is that it allocates 30% of its weight to communication services stocks, levering to increasing broadband spending, which is included in the White House’s infrastructure pitch.
For more on multi-asset strategies, 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.