The U.S. stock market is divided over whether Democrat Hillary Clinton or Republican Donald Trump will win the coming presidential election, as well as over who would be better for the economy.
However, a rare area of agreement between the candidates has become a hot trade this year: fiscal stimulus. Specifically, investing in improvements to aging electrical grids, roadways, bridges and tunnels.
Both candidates have called for massive investments in infrastructure, advocating that hundreds of billions of dollars be allocated to repairing and upgrading and repairing the U.S.'s infrastructure. The prospect of massive demand has resulted in a huge boom for exchange-traded products that track infrastructure-related stocks. Every fund in the space—which are global, as opposed to solely focused on the U. S.—has doubled the performance of the S&P 500 this year.
The iShares Global Infrastructure ETF (IGF), the biggest infrastructure ETF with about $1.07 billion in assets, is up 15.3% in 2016, while the $449 million Guggenheim S&P Global Water Index ETF (CGW)—which deals with water infrastructure companies—has gained 13.7% so far this year.
Among other funds, both the ProShares DJ Brookfield Global Infrastructure ETF (TOLZ) and the Deutsche x-Trackers S&P Hedged Global Infrastructure ETF (DBIF) are up 14.3% this year, while the SPDR S&P Global Infrastructure ETF (GII) has gained 15.3%. The $6.7 million Guggenheim S&P High Income Infrastructure ETF (GHII), which also has benefited from the 2016 trend of investors embracing dividend stocks amid low interest rates, is up 21%. To compare, the S&P 500 (.SPX) is up 5.5% in 2016.
"This is one of the few areas that both candidates agree on—that infrastructure spending needs to be a priority," said Jim King, managing director of ETF portfolio management at Guggenheim Investments. "So far there's been a lot of talk, but not a lot of action, which means a lot of the growth is ahead of us; there is aging infrastructure both here and abroad."
Outside of the U.S., talk of a ramping up infrastructure investments as a way to breathe fresh life into sluggish global markets also has picked up, highlighted by comments from prominent economist Nouriel Roubini, who wrote that such "fiscal policy would be the only effective macroeconomic-policy tool left, and thus would have to assume much more responsibility for countering recessionary pressures."
Domestically, the potential upside for companies could be significant. The American Society of Civil Engineers—which gave America's infrastructure a D+ grade—estimated that $3.6 trillion needed to be invested by 2020.
So far, the candidates haven't advocated anything on that magnitude. Clinton proposed a five-year $275 billion infrastructure plan, with $250 billion of that going to direct public investments and the rest to a national infrastructure bank. Trump said he would "at least double" that, although his website doesn't include specific details.
The issue has bipartisan agreement, which suggests that any spending package has a higher chance of making it through often-gridlocked legislature regardless of who gets elected in November. Investors seem to be banking on that: most of the components across the funds have a price-to-earnings ratio that is well above the 28.67x ratio of the S&P 500, along with revenue growth below the S&P's 2.1% rate. Those metrics of valuation could indicate vulnerability if an infrastructure plan fails to materialize.
Guggenheim's Water fund has been particular popular this year, with $45.7 million in inflows year-to-date—the most of any infrastructure-related fund, according to FactSet data. King suggested that the crisis in Flint, Mich., where poisonous levels of lead have been found in the water, underlined how much demand there was for this "niche within a niche" of infrastructure. The ETF's fundamentals—it has both a lower P/E and higher revenue growth than the S&P and other infrastructure funds—have added to the investment thesis surrounding the fund.
"While a lot of the attention is paid to roads and bridges, there's also a lot of underground infrastructure that's in need of an upgrade," King said. "Over the last five months it's as though the floodgates have opened, if you'll excuse the pun."