Investors looking for yield and assets that usually aren’t highly correlated to traditional market segments may want to consider infrastructure concepts, including the ProShares DJ Brookfield Global Infrastructure ETF (NYSEArca: TOLZ).
The ProShares DJ Brookfield Global Infrastructure ETF provides exposure to airports, toll roads, ports, communications, electricity distribution, oil and gas storage, and transport, and water in both developed and emerging markets. The underlying index also excludes companies that supply services such as construction and engineering to the infrastructure industry.
“Pure-play infrastructure, which invests in the owners and operators of infrastructure, may be a compelling solution. This category provides a way to invest in companies that generate income while also providing an attractive outlook, per relative valuations of the S&P 500,” said ProShares in a recent note.
Getting Intelligent About Infrastructure
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 TOLZ may be able to capture the growing demands of economic development that are driving more funding into transport, power, and other systems.
“Infrastructure—transportation, energy, water, and communication—is essential to modern society,” according to ProShares. “As an asset class, infrastructure has historically offered growth potential, steady income, and resilience during market downturns. Infrastructure can be attractive in many economic climates and for many investors.”
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 of the most obvious benefits of TOLZ is its emphasis on “pure-play” infrastructure names.
“Non-pure-play companies are those that build or service infrastructure—construction companies, airline manufacturers and the like. While these companies may benefit from increased infrastructure spending or servicing needs, because they do not own or operate infrastructure, they are unable to provide all of the ongoing beneﬁts of infrastructure investing, such as predictable cash ﬂows and attractive yields,” according to ProShares.
Meanwhile, population growth, aging infrastructure, and constrained government budgets are creating opportunities for the private sector. The high cost of entering the infrastructure business also limits competition or provides a wide economic moat for those already in the field.
“Pure-play infrastructure companies directly own and operate infrastructure assets, including toll roads, cell towers, pipelines, and airports, providing a direct way to access the investment characteristics of infrastructure—predictable cash flows, attractive yields and limited sensitivity to economic cycles,” notes ProShares.
For on income strategies, visit our Retirement Income Channel.
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.