With a presidential election year right around the corner, the FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA) and rival infrastructure exchange traded funds will soon face political tests and some of those tests could arrive sooner than others.
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.
“A group of transportation and manufacturing associations will host a forum for presidential candidates to discuss infrastructure issues,” reports Transport Topics. “The Moving America Forward forum, convened by United for Infrastructure, will be held in Las Vegas over Presidents Day weekend, which is Feb. 15-17. United for Infrastructure is a nonpartisan institution that focuses on educating the public and policymakers on infrastructure issues. The group organizes Infrastructure Week every year.”
So, the fundamental story is there for NFRA. It’s got the right stocks in it. Plus, the story is not going to stop anytime soon. The countries won’t pull back, and not allocate money that’s already been pre-allocated for infrastructure.
Right Now For NFRA ETF
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 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.
The strategy could be particularly useful at a time when the U.S. needs to ramp up infrastructure spending after years of lagging behind in that category compared to other major economies.
“Discussion of infrastructure largely has been absent from the presidential debates. The sixth and final debate is scheduled for Dec. 19 at UCLA,” according to Transport Topics. “The nation earned a D+ on ASCE’s infrastructure report card, issued in 2017. The group estimates that America faces a $2 trillion funding gap for infrastructure needs. ASCE has determined that, from 2016 to 2025, each household will lose $3,400 each year in disposable income due to infrastructure deficiencies.”
NFRA is up 21% year-to-date and yields over 2.3%.
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.