With the White House and Congress working on stimulus packages to aid an economy grappling with the effects of the Coronavirus, there is some talk infrastructure spending could enter the equation as a way of rejuvenating economic output, a theme that could benefit ETFs, such as 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.
“One idea that has been floated by Senate Appropriations Committee Chairman Richard Shelby is a $1 trillion infrastructure program. Many Democrats also support the idea of infrastructure as a stimulus, although there will always be differences of opinion on the level of funding and types of projects supported,” reports The Hill.
Reducing Volatility
The infrastructure category has also historically offered higher dividend yields than global fixed-income and global equities, along with greater predictability of long-term cash flows. The ETF may be able to capture the growing demands of economic development that are driving more funding into transport, power, and other systems.
Furthermore, 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.
“A bipartisan group of 20 members of Congress wrote House leadership urging them to pass an infrastructure spending bill. This is also good, as infrastructure spending not only can provide the immediate economic stimulus but also provides a foundation for further economic development down the road,” according to The Hill.
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.
“Infrastructure development will have the additional economic benefit of creating millions of jobs and accelerating economic growth and productivity. If infrastructure development will be part of policymakers’ solution to addressing our current economic woes, we need to be sure those funds can actually be spent,” according to The Hill.
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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.