Getting infrastructure exposures is more than just taking advantage of a hot trend, especially with exchange-traded funds (ETFs) such as the FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA).
Infrastructure exposure can offer many advantages to an investor’s portfolio. One such benefit, especially in today’s low-rate environment, is the availability of income.
“Investors seeking income and portfolio diversification may benefit from infrastructure investments,” FlexShares said on their website. “Our analysis suggests that infrastructure issuers tend to have predictable cash flows as they provide essential services used in all economic environments. Infrastructure stocks carry both equity and interest rate exposure and can provide an alternative source of income that may be attractive in a low interest rate environment.”
NFRA seeks investment results that generally correspond to the price and yield performance, before fees and expenses, of the STOXX® Global Broad Infrastructure Index. The index reflects the performance of a selection of companies that, in aggregate, offer broad exposure to publicly traded developed- and emerging-market infrastructure companies, including U.S. companies, as defined by STOXX Ltd. pursuant to its index methodology.
A Global Diversification Tool
The dynamic trading ability of an ETF lends itself to the advantages of getting global infrastructure exposure. In the past, investors were required to enter extended lock-up periods where capital would be tied up in long-term contracts.
With NFRA in the form of an ETF wrapper, investors can get the diversification of global infrastructure while having the ability to buy or sell quickly in the open market.
“Direct infrastructure investments may require long lock-up periods when an investor may not have access to their original investment and may require a high initial investment,” FlexShares noted. “Investors who seek to access global infrastructure investments through a liquid vehicle may consider NFRA as an alternative.”
Additionally, NFRA diversifies infrastructure exposure even further by delving into niche markets under the infrastructure umbrella. As a result, investors are less exposed to concentration risk.
“NFRA utilizes a bottom-up portfolio construction approach that expands the traditional infrastructure definition and allows for a broader inclusion of new and evolving infrastructure sectors such as communications (data centers, wireless) and outsourced services,” FlexShares added. “This broader diversification has historically helped NFRA to avoid large concentrations in other traditional sectors such as utilities.”
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