Electoral politics are expected to boost infrastructure ETFs, including the FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA), but critical to that thesis is politicians executing the right way on infrastructure.
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 considering NFRA or any other infrastructure asset are betting this time will be different when it comes to policy execution and implementation.
“For anyone looking to boost the coronavirus-addled economy, or to create sustainable, multigenerational improvements in America’s roads, bridges, transit, water supply, flood management and power grid, pandemic induced stimulus funding is a rare opportunity,” according to a New York Times opinion piece. But there’s a catch. Like all good ideas, the value of infrastructure spending lies in its execution. Spending alone is not enough. America made that mistake during the last economic crisis; it can’t afford to repeat it.
Need Is Real
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.
“In 2009, the United States spent about $140 billion on infrastructure as part of its fiscal rescue efforts,” according to the Times. “Politicians and pundits talked of a new New Deal, invoking the sprawling building programs under Franklin D. Roosevelt. The largest infrastructure line item was $28 billion for highways and bridges.”
However, NFRA’s roster is broader, diversified, and focused on more than just companies that shore up highways and roads. That’s a positive should politicians opt to emphasize other infrastructure needs.
“The challenge, then and now, is how to balance the political and economic demands to create jobs immediately with the forward-looking demands for meaningful steps toward a sustainable future. America failed that challenge in 2009. Can it get it right this time?,” notes the Times.
If the answer to that query is “yes”, NFRA is positioned to benefit.
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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.