With the 2020 election cycle fast approaching, infrastructure spending is a theme receiving renewed attention and that could be a catalyst for ETFs, such as the FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA).
In its own right, NFRA has been receiving renewed attention from investors in recent weeks. 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.
While infrastructure spending is determined by politicians, making it a political issue, it is one of the rare bipartisan items lawmakers consider.
“As we move forward in the 21st century, it is imperative that our infrastructure keep pace with the people and nation it supports,” said Rep. Steve Womack, R-Ark. at a recent congressional hearing. “Thankfully, infrastructure has historically been a priority for both parties. The bipartisan spirit has served our country well — and it will be important as we work to rebuild the system.”
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.
“Since 2010, China has spent roughly 8% of its GDP on infrastructure. European countries, on average, dedicate roughly 5% of their GDP to infrastructure. In the U.S., the figure is roughly 2.4%,” according to Arkansas Online.
One of the advantages in 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.
NFRA is up 23.49% year-to-date and has a dividend yield of 2.55%, according to XTF.com on Nov. 4.
For more information on the infrastructure sector, visit our infrastructure category.