The Global X U.S. Infrastructure Development ETF (Cboe: PAVE) is up 18.65% this year, making the fund one of the leaders among infrastructure ETFs. While PAVE is impressing in 2019, what is more important is the ETF’s long-term potential.
PAVE tries to reflect the performance of the Indxx U.S. Infrastructure Development Index, which is comprised of companies focused on domestic infrastructure development, including those involved in construction and engineering; production of infrastructure raw materials, composites and products; industrial transportation; and producers/distributors of heavy construction equipment.
Recent infrastructure investment in the U.S. has been on the rising, boding well for investments such as the $129.6 million PAVE.
“Importantly, private sector infrastructure financing, as well as leadership from states and local municipalities, have contributed significantly to recent investment,” according to Global X research. “Political gridlock at the federal level should still, however, be evaluated as a short-term obstacle given that widespread support for infrastructure exists across the political spectrum.”
PAVE ETF Power
PAVE, which recently turned two years old, holds 93 stocks and over 93% of those holdings hail from the industrial and materials sectors. Infrastructure needs remain dire and obvious, but this is one issue the split Congress could come together on.
“The current administration and nearly all 2020 presidential candidates appear supportive of a major US infrastructure package,” said Global X. “Business interest in infrastructure investment is similarly high given its potential to boost economic productivity and growth. Indeed, despite partisan bickering, the 2020 federal budget is expected to include at least $200 billion for infrastructure, as an early stage bid for the long-dreamed of trillion-dollar deal.”
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While he was campaigning, President Donald Trump’s pledge to spend $1 trillion shoring up U.S. infrastructure needs was seen as a potential catalyst for the related exchange traded funds. Still, it could take some time for infrastructure ETFs to see the full benefit of Trump’s still nascent infrastructure plans. Fortunately for PAVE, infrastructure demand exists without political wranglings.
“Politics aside, demand for infrastructure investment is driven by several factors, including demographic trends, depreciation of existing infrastructure, environmental risks, changing preferences and advances in technology,” notes Global X. “Accordingly, we explore the near- and long-term catalysts expected to fuel demand for infrastructure modernization in the United States for the foreseeable future.”
For more information on the infrastructure sector, visit our infrastructure category.