Coming off an impressive 2019 showing, the FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA) could be front and center this year as election year chatter swirls around infrastructure.
The U.S. Department of Transportation is already showing that infrastructure is going to be a major priority in 2020.
“The U.S. Department of Transportation recently unveiled an interactive map depicting federal investment in major infrastructure projects in underserved rural and urban communities,” reports Transport Topics.
Infrastructure developments are typically large, long in duration and capital-intensive, carrying a high overall cost. Nevertheless, the projects compensate investors by including fairly predictable expenditures to maintain the asset, as well as regulated pricing that typically provides stable and reliable cash flows. Select investors have long enjoyed the unique characteristics of infrastructure to diversify equity risk exposure, generate income and hedge against long-term inflation.
Reflect Right Now For 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.
This year, NFRA could benefit from significant infrastructure enhancements in large metropolitan areas across the U.S. Those regions “include major metropolitan centers such as Boston, New York, Atlanta, Chicago, the Twin Cities, Houston, and Los Angeles,” according to Transport Topics.
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.
There are also significant rural infrastructure needs, which as addressed, could give a boost to NFRA.
“Rural roads make up 70% of America’s road miles, according to DOT. Maintaining these roadways can be a challenge for rural communities that have thin financial resources. Although geographically sprawling, rural communities generally have low population densities, meaning fewer people to support investment,” notes Transport Topics.
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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.