As an asset class, infrastructure investments aren’t necessarily considered flashy or glamorous, but the theme is important as governments around the world mull increased spending to shore up airports, bridges, highways and other arteries of commerce and transportation.
The FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA) represents one of the more compelling to infrastructure investing. 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.
“America’s infrastructure is in dire need of significant investment — the American Society of Civil Engineers has infamously given the United States a cumulative D+ on its Infrastructure Report Card, with a D+ for energy infrastructure in particular,” reports Kathryn Firth for Next City. “Our electrical grid alone is estimated to need $2 trillion in investments over the next 30 years.”
NFRA offers investors sound fundamentals and above-average dividend yields, making the asset class appealing in the current market environment. The FlexShares methodology also benefits from the expansion of the traditional infrastructure framework to take advantage of the evolving infrastructure space and gain access to wireless towers, data centers and governments outsourced services.
A Community Asset
“Infrastructure should be conceived as a community asset, both providing equitable new public space and contributing to the beauty of cities, at a time where pressure on urban land is at a premium and civic pride often waning,” notes New City.
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.
Additionally, NFRA reflects global opportunities in the infrastructure arena, which is important because some developing are often swifter in deploying infrastructure capital than are developed markets.
There is a critical need for infrastructure upgrades across Developed Markets, along with a high demand for new infrastructure to meet the rapidly growing middle class in Emerging Markets. The FlexShares strategy focuses on global infrastructure which is dominated by already built infrastructure and these tend to be mature projects characterized by stable cash flows with a greater correlation to inflation than Emerging Markets.
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.