The FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA) is higher by more than 20% year-to-date and with infrastructure expected again be a steady asset class in 2020, NFRA could deliver more upside for investors in the year ahead.
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.
NFRA yields a decent 2.34% and is positioned to take advantage of election year infrastructure chatter in 2020.
“U.S. transportation infrastructure growth will continue moving more or less in step with leveling off GDP next year,” said Fitch Ratings in a recent note. “Volume growth remains favorable for U.S. airports, ports and toll roads and will remain largely tethered to U.S. GDP movement, which Fitch projects will fall below 2% for 2020.”
Now’s The Time For NFRA
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.
“Moving more closely in tandem with U.S. GDP next year will be U.S. toll roads and ports,” notes Fitch. “Stronger performance is expected for toll roads in the Southeast and Southwest regions in particular, due to stronger demographic trends versus the U.S. overall. Meanwhile, volumes at East Coast ports are likely to continue outpacing those of their West Coast counterparts due to their higher exposure to Chinese tariffs. Over time, revenues may start to decline at West Coast ports the longer the trade impasse with China continues.”
Investors who want to access global infrastructure investments through a liquid vehicle may consider NFRA as an alternative to being forced into long lock-up periods and high initial investments associated with direct infrastructure exposure.
Furthermore, infrastructure exposure could help protect against long-term inflationary risks since most infrastructure operators pass through the cost increases of inflation to users per long-term contracts that typically underpin the infrastructure business models.
“Two other key developments are worth close watch next year, the first being the fate of PPPs as developer risk allocation led to some contractors exiting the U.S. market,” according to Fitch. “The second is emerging technologies like driverless cars and connected vehicles. Parking assets and managed lanes appear most vulnerable to this change, though more widespread risk is unlikely to manifest for at least the next decade.”
For more information on the infrastructure sector, visit our infrastructure category.
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.