Infrastructure has become a huge topic with the current administration, which could give infrastructure-related ETFs a dramatic boost in the coming months.
Infrastructure ETFs like the Global X infrastructure ETF (PAVE), which is up over 20% year to date, could see significant increases in profitability as well.
According to the Global X Website: “The Global X U.S. Infrastructure Development ETF (PAVE) seeks to invest in companies that stand to benefit from a potential increase in infrastructure activity in the United States, including those involved in the production of raw materials, heavy equipment, engineering, and construction. The Global X U.S. Infrastructure Development ETF (PAVE) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx U.S. Infrastructure Development Index.”
“I think the important thing to recognize is these are long term plays here. It’s not a direct line from that $500 billion deal into the pockets of companies. But there’s no question that the entire planet is really in the middle of this infrastructure rebuild and build out depending on whether you’re looking at emerging markets or or domestic markets,” said Dave Nadig, chief investment officer and Director of research at ETF Trends in a CNBC interview on Wednesday.
“It’s really hard to pass an infrastructure deal. Presidents have been trying to pass one for several years now. Do you have this one more part of its budget reconciliation and part of it is that it’s a negotiate a deal. So I think there’s a lot to come before you actually get to the finish line,” said Jay Rhame, CEO of Reaves Asset Management, in the same interview.
While infrastructure bills have been notoriously challenging to push through, Rhame explained that, “there’s certainly a lot of incremental spending that benefits a lot of sectors,” and that “there’s certainly an impact on lower financing conditions, helping to for example, lower the cost of renewable power, which will really really benefit a lot of companies, and a lot of consumers.”
For investors looking to partake in the infrastructure sector using ETFs, other funds to consider include the FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA) or the Virtus Reaves Utilities ETF (UTES).
The FlexShares STOXX® Global Broad Infrastructure Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the STOXX® Global Broad Infrastructure Index (Underlying Index).
“Many investors look to infrastructure investments as a source of income—which is particularly beneficial in today’s prolonged low interest rate environment,” FlexShares said. “And like real estate, infrastructure tends to benefit from low interest rates, as they result in lower costs and debt financing.”
Meanwhile, UTES seeks to provide total return through a combination of capital appreciation and income. The fund invests not less than 80% of its net assets (plus the amount of any borrowings for investment purposes) in equity securities of companies in the Utility Sector (“Utility Sector Companies”). The manager considers a company to be a “Utility Sector Company” if at least 50% of the company’s assets or customers are committed to, or at least 50% of the company’s revenues, gross income or profits derive from, the provision of products, services or equipment for the generation or distribution of electricity, gas or water. The fund is non-diversified.
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