On the campaign trail in 2016, President Trump made big infrastructure promises, but since then, Congress has failed to act on a sizable package to shore up America’s roads, bridges, and highways.
With 2020 being an election year, expect Trump to give infrastructure another go, an effort 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.
“In another election year, Trump has outlined a new $1 trillion plan for spending on roads, rails, water systems, and other infrastructure,” reports the Associated Press. “This time, the president is proposing to rely fully on federal spending. That fundamental change from his first plan drew praise from some state transportation officials and industry groups, even though Trump doesn’t spell out how to pay for it all.”
Infrastructure Spending Beckons
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 developing that are driving more funding into transport, power, and other systems.
“Trump’s retooled infrastructure plan relies on existing fuel tax revenue to cover much of the cost. That allows him to include billions of dollars worth of projects that likely would have happened no matter who was president,” according to the AP.
One of the advantages of infrastructure is that regardless of what the global economy is doing, it’s a necessity. Furthermore, it’s less prone to the cyclical movements of the economy, which makes it a viable alternative as a defensive play.
One issue Trump needs to conquer is finding revenue sources for his infrastructure ambitions.
“White House budget documents show that Trump’s plan lacks revenue sources for almost half the $1 trillion amount — about $450 billion proposed for roads and bridges, public transit, rails, ports, pipelines, dams, drinking water and sewer systems, and electrical and high-speed internet networks,” reports the AP.
NFRA is beating the S&P 500 by 370 basis points over the past week.
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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.