Yield-Generating ETF Strategy for Inflationary Periods

As the economy expands and inflation expectations rise, investors have looked into a number of usual suspects to maintain their purchasing power, but an infrastructure sector-related ETF often falls under the radar.

For example, investors can take a look at something like the FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA) to gain expsoure to the global infrastructure segment.

“Combined with the fact that infrastructure equities have historically provided a favorable income return relative to other equities, we thought the inflation protection offered by the fund would present an interesting combined benefit for investors to consider,” according to Northern Trust’s Flexshares. “And, of course, we keep hearing that the U.S. is in great need of infrastructure investment.”

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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 and 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.

“Infrastructure presents a long-term inflation hedge as the revenues infrastructure projects derive are heavily regulated and tied to the Consumer Price Index (CPI),” according to FlexShares.

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 traditional 6.9% utilities, 25.3% transportation and 30.8% energy sectors, along with nontraditional 29.0% communications and 6.3% government outsourcing/social sub-sectors. Due to its indexing methodology, the fund leans toward value 45.1% and core blend 35.5% asset categories.