It often takes a while, but with the 2020 election year right around the corner, politicians from both parties are warming to infrastructure as a way of wooing voters and that could be a theme that benefits ETFs, such as the FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA).
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.
“A coalition of nearly 40 prominent infrastructure stakeholders has urged the powerful Republican leader of the U.S. Senate to set up consideration for a comprehensive highway bill this year,” reports Transport Topics. “In their letter to Sen. Mitch McConnell (R-Ky.), the coalition emphasized that an inability to pass a new bill is likely to pave the way for the approval of short-term policy extensions, a scenario they want to avoid.”
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, adding to the allure of NFRA.
Investors who want to access global infrastructure investments through a liquid vehicle may consider NFRA as an alternative to being forced into long lock-up periods and high initial investments associated with direct infrastructure exposure.
Furthermore, infrastructure exposure could help protect against long-term inflationary risks since most infrastructure operators pass through the cost increases of inflation to users per long-term contracts that typically underpin the infrastructure business models.
“Freight stakeholders, trade unions, roadbuilders, transit operators, state highway officials, and business interests have consistently joined hands over the years to pressure House and Senate leaders to approve a timely update of federal surface transportation programs,” according to Transport Topics. “With interest in climate change, urban mobility and alternative modes of travel evolving, nonfreight advocates have seemed more vocal about infrastructure.”
The next step is seeing if Congress can put aside partisan differences to execute a large-scale infrastructure plan ahead of the 2020 elections.
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.