The infrastructure bill enjoys widespread support.
While the headlines around massive U.S. infrastructure spending packages continue to harp on the challenges of finalizing this landmark legislation, there is little doubt that much of the voting public strongly supports a bold move. Specifically, a recent poll by USA Today found that nearly two-thirds of all Americans, including 36% of Republicans, support the $1 trillion physical infrastructure bill already passed by the Senate — making it likely that full passage is not a matter of if but when. So how can investors position themselves to take advantage of an increase in domestic infrastructure spending? These seven exchange-traded funds offer diversified ways to cash in on the trend.
Global X US Infrastructure Development ETF (ticker: PAVE)
This Global X fund is the largest exchange-traded product to play infrastructure investment, with about $4.6 billion in assets under management. According to the fund’s documentation, PAVE focuses on companies engaged in “production of raw materials, heavy equipment, engineering, and construction.” Right now, that includes steelmaker Nucor Corp. (NUE), electric equipment manufacturer Eaton Corp. Plc. (ETN) and heavy machinery icon Deere & Co. (DE). There’s a wide array of individual U.S. stocks making up this roughly 100-company fund, and collectively they have outperformed with roughly 30% gains year to date for this infrastructure ETF.
iShares Global Infrastructure ETF (IGF)
Another large infrastructure fund with more than $3.1 billion in assets, this iShares ETF is similar to the previous fund but instead offers investors a global approach. The fund has a slightly more focused portfolio, comprising only about 70 large infrastructure players from around the globe, but that doesn’t prevent IGF non-U.S. companies from benefiting from U.S. infrastructure spending. One example is Canada-based Enbridge Inc. (ENB), which operates oil and gas pipelines across the U.S. Another is Transurban Group (TRAUF), an Australia-based toll road operator that also happens to be the company in charge of the Washington D.C. Beltway and related commuter lanes in Maryland and Virginia. This global focus has held IGF back a bit year to date, but it is still up about 9% so far in 2021. And in the long term, a diversified approach may allow for less volatility as domestic infrastructure spending waxes and wanes.
FlexShares STOXX Global Broad Infrastructure ETF (NFRA)
Smaller than the prior two leaders in both assets and name recognition, NFRA is an infrastructure ETF with a sizable asset base of $2.9 billion that is also worth a look. That’s in large part because of its massive portfolio of 176 different components that touch nearly every conceivable element of infrastructure investing. Like the iShares fund, it is open to international components. But unlike the prior funds, you’ll find telecom plays on the list including Comcast Corp. (CMCSA) and Verizon Communications Inc. (VZ) in addition to materials and manufacturing firms. If you want a bit of a digital flavor to your infrastructure investing strategy, NFRA offers that.
iShares US Infrastructure ETF (IFRA)
IFRA is an infrastructure ETF offered by investment giant iShares designed to give direct exposure “to U.S. infrastructure companies that could benefit from a potential increase in domestic infrastructure activities,” according to the company. So while it’s a bit smaller at only about $709 million in assets under management, it is still worth considering if you’re trying to ride future U.S. spending waves in this area. And with more than 150 positions and no single stock representing more than about 1% of the total portfolio, it is also incredibly diversified. Top components right now include utility NRG Energy Inc. (NRG) for its power grid potential and municipal water provider Middlesex Water Co. (MSEX), among others.
SPDR S&P Global Infrastructure ETF (GII)
GII rounds out the list of major infrastructure ETFs, sponsored by State Street Corp.’s (STT) megafund brand SPDR. This option is admittedly the smallest so far at only about $450 million in assets under management and offers one of the smaller lists of components with only about 70 or so total stocks. It’s also worth pointing out that list is top heavy, with 20% of assets in the top four holdings alone. Last but not least, the fund has lagged significantly year to date with only about 10% gains — less than most of the other peer funds on this list, and well behind the more than 20% return of the S&P 500 index. These are the obvious risks here, but if you like the SPDR brand or have particular faith in top holdings such as NextEra Energy Inc. (NEE), it could be worth a gamble.
Global X MLP & Energy Infrastructure ETF (MLPX)
As you’ve seen so far, there are a bunch of infrastructure ETFs on this list that are heavily invested in energy-related operations. If this area in particular interests you, then consider this dedicated Global X fund. It’s substantial with about $700 million in assets, but is composed of a short list of just 25 companies engaged in energy infrastructure such as Kinder Morgan Inc. (KMI) and TC Energy Corp. (TRP). As the name implies, many of these stocks are classified as master limited partnerships that deliver huge dividends to shareholders because of their partnership structure. That makes MLPX good for a 6% yield on top of the chance of capital appreciation.
SPDR S&P Transportation ETF (XTN)
Lastly, SPDR offers a $500 million infrastructure fund with the opposite approach — cutting out energy, telecom or other ancillary plays to focus on about 45 transportation-related investments that many folks think of first when they consider infrastructure spending. These include marine shipping and port play Matson Inc. (MATX) and trucking and logistics play Saia Inc. (SAIA). These are naturally much more cyclical investments, tied to overall economic activity, so there’s a bit more risk here. XTN is up 25% year to date and could provide continued upside if and when infrastructure spending materializes.
Infrastructure ETFs to cash in on $1 trillion spending bill:
— Global X US Infrastructure Development ETF (PAVE)
— iShares Global Infrastructure ETF (IGF)
— FlexShares STOXX Global Broad Infrastructure ETF (NFRA)
— iShares US Infrastructure ETF (IFRA)
— SPDR S&P Global Infrastructure ETF (GII)
— Global X MLP & Energy Infrastructure ETF (MLPX)
— SPDR S&P Transportation ETF (XTN)
