3 infrastructure ETFs to capture trillions in spending

Congress will negotiate President Biden's $2.25 trillion infrastructure bill this summer. These infrastructure ETFs could benefit from the huge spending plan.

  • By Kent Thune,
  • Kiplinger
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Big government spending is turning its sights away from COVID-19 relief and toward infrastructure, with President Joe Biden proposing a public works bill – known as the American Jobs Plan – to the tune of $2.25 trillion. Investors looking for ways to capitalize on this new proposal might want to set their own sights on infrastructure ETFs, which could benefit from this historic spending initiative.

Biden's $2.25 trillion infrastructure spending plan is expected to move through Congress over the next several months, with some eyeing a potential vote on the measure as early as this summer. And while negotiations in a deeply divided House and Senate are likely to change how the spending bill looks in its current form, it could only be a matter of time before a giant economic infusion finds its way to infrastructure stocks across multiple sectors and industries.

To be clear, it's important for investors to understand that infrastructure is not an industrial sector in itself, but rather a general term referring to a combination of systems related to a business, nation or region. Typical sectors you'll find within infrastructure ETFs include industrials, basic materials, energy and communication services.

"Infrastructure spending will impact many companies, providing cross-sector thematic ETFs with an opportunity to shine," says Todd Rosenbluth, CFRA's Head of ETF & Mutual Fund Research.

Today, we'll take a look at three of the largest infrastructure ETFs on the market that could get a boost from the massive spending bill. All of these are ETFs that Rosenbluth likes for potential growth opportunities both in the U.S. and around the globe.

Data is as of April 18. Yields represent the trailing 12-month yield, which is a standard measure for equity funds.

iShares Global Infrastructure ETF

  • Assets under management: $3.1 billion
  • Dividend yield: 2.3%
  • Expenses: 0.46%, or $46 for every $10,000 invested

The iShares Global Infrastructure ETF (IGF) is the largest infrastructure-themed ETF on the market, and its holdings include shares of transportation, communication infrastructure, water and electricity services companies around the world.

"As the ETF's name suggests, this is a global strategy with just 34% in U.S. companies and double-digit exposure to Canada and Australia, with smaller stakes in China, Italy and Spain," Rosenbluth says.

Thus, shareholders have an ETF that can prove beneficial for infrastructure spending in the U.S., but also for reopening global economies in a post-Covid world.

The IGF portfolio is made up of three sectors: utilities, industrials and energy. The significant exposure to utilities here illustrates well how infrastructure impacts much more than just industrial stocks.

"Utilities, such as Duke Energy (DUK) and NextEra Energy (NEE), are 41% of IGF's assets, more than the ETF's 39% stake in industrials," Rosenbluth says.

IGF's exposure to non-U.S. stocks and to sectors outside of industrials and materials can provide greater diversification than more concentrated infrastructure ETFs. But the degree of direct benefit from the pending infrastructure bill could prove to be less.

IGF currently garners a respectable three of five stars from CFRA.

Global X U.S. Infrastructure Development ETF

  • Assets under management: $2.8 billion
  • Dividend yield: 0.6%
  • Expenses: 0.47%

Global X U.S. Infrastructure Development ETF (PAVE) is an exchange-traded fund that offers concentrated exposure to U.S.-listed infrastructure stocks.

PAVE's U.S.-focused portfolio is an opportunistic way to capitalize on the massive infrastructure bill that is poised to move through Congress in the coming months, given its focus on companies involved in construction, raw materials and industrial transportation.

At about 72% of assets, the PAVE portfolio is heavily allocated to the industrials sector, which could result in outsized benefits from the proposed spending plan.

A recent report from CFRA points out that PAVE's top holding Deere (DE) could have positive implications from the pending infrastructure bill. "We think that U.S. firms… are well-positioned to (benefit from) strong demand in the years ahead," the report says.

Adding to the allure of this infrastructure ETF, CFRA gives the fund its highest rating of five stars.

FlexShares Stoxx Global Broad Infrastructure Index Fund

  • Assets under management: $2.5 billion
  • Dividend yield: 2.4%
  • Expenses: 0.48%

FlexShares Stoxx Global Broad Infrastructure Index Fund (NFRA) is an ETF that offers a balance of U.S. and non-U.S. infrastructure stocks, providing investors with exposure to publicly traded developed and emerging-market companies.

A distinguishing feature of this infrastructure ETF is its outsized portfolio allocation to the communication services sector, which comprises about 30% of the fund's holdings. This sector focus could prove to be beneficial, should the massive government-approved cash infusion get the green light from Congress.

"The Biden infrastructure proposal includes spending to upgrade broadband capabilities across the U.S. that would be a boost for some communications companies," Rosenbluth says.

Driving the communications sector weightings in NFRA are holdings such as AT&T (T) and Comcast (CMCSA). Other sector exposure for NFRA includes energy at about 30%, transportation at 24% and utilities at 7%.

Like with IGF, NFRA earns three of five stars from CFRA.

Kent Thune did not hold positions in any of these bond funds as of this writing. This article is for information purposes only, thus under no circumstances does this information represent a specific recommendation to buy or sell securities.

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© 2021 The Kiplinger Washington Editors, Inc.
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