Joining TD Ameritrade Network’s “Morning Trade Live” with host Oliver Renick, ETF Trends’ CIO and Director of Research, Dave Nadig, makes a case for infrastructure ETFs PAVE and NFRA as funds to watch in 2021. He also reveals whether he sees reopening funds like AWAY continuing to trend higher throughout the year.
Looking at infrastructures and taxes first, Nadig explains how the Biden administration is likely going to package these things together, leading to an infrastructure bill that will be paid for through one of many taxes, with the estate tax or the capital gains tax being two strong possibilities. These changes are causing some consternation about portfolio taxes and the opportunity to take advantage of an infrastructure spend.
With that in mind, Nadig is a fan of the FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA) and the Global X U.S. Infrastructure Development ETF (PAVE), which take different approaches despite similar qualities. PAVE is more suitable for industrial plays. NFRA is more of a global reinvestment play.
Nadig does have a caveat. He notes that “Historically, government infrastructure spending doesn’t just flow right into public equities. And it’s not supposed to. The point of global infrastructure spending is to get money into municipalities around the world to do the projects that keep countries running — that would keep the U.S. running.”
With respect to a long-term play, the diversity seen in NFRA is likely the better option. PAVE may be better to focus on investor pschology.
Shifting Demand
This is a big transition year, where wealthy investors position portfolios face up a worse tax regime and capital gains issues. Really, that means looking at ETFs. In 2020, only 70 ETFs even distributed capital gains and didn’t get any redemptions. However, currently, there is around $250 billion in inflows, putting things on track for an ETF year that gets near a trillion dollars.
Looking at other areas where momentum has shifted, there’s obviously a desire to have things exist in a way that seems ‘back to normal’. However, the bigger concern is overselling the work from home stocks. There may be some exaggeration on how much will reopen, but that really means reinvesting in the core economy.
As far as which funds are turning out to be a flash in the pan, Nadig states how certain funds are hot for a time, only for some of that money to flow out on every downturn. However, that money tends to be held onto more than it seems. It’s actually the transparency in the ETF industry that really helps people stay invested.
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