America's infrastructure is in pretty rough shape. The American Society of Civil Engineers barely gave a passing grade to the country's infrastructure (C-) when it provided its last report card in 2021. That has spurred Congress to pass nearly $1 trillion in legislation in recent years to fund essential projects to maintain and expand the country's infrastructure.
The problem and the opportunities are both vast. However, there's an easy way to potentially cash in on the country's massive infrastructure investment: the Global X U.S. Infrastructure Development ETF (PAVE 0.65%). The exchange-traded fund (ETF) paves the way for investors to gain broad exposure to this investment megatrend.
Digging into PAVE
The Global X U.S. Infrastructure Development ETF invests in companies that should benefit from increased spending on U.S. infrastructure. The fund holds shares of around 100 companies that produce raw materials, manufacture heavy equipment, and provide engineering and construction services.
Here's a closer look at the fund's top three holdings:
- Trane Technologies (TT +0.13%): The ETF has 3.8% of its net assets in the climate solutions company. It makes commercial and residential HVAC units under the Trane brand and climate-controlled solutions to transport refrigerated products under the Thermo King brand. Trane's revenue and profits are growing briskly (up 11% and 21%, respectively, in the third quarter). It also generates lots of cash, which it returns to shareholders via a growing dividend and meaningful share repurchase program (it recently added $5 billion to its authorization).
- Quanta Services (PWR 1.39%): The fund has a 3.5% weighting to the civil engineering company. It provides specialized infrastructure solutions to the utility, renewable energy, technology, communications, pipeline, and energy industries. Quanta Services has expanded its capabilities this year by making several acquisitions. The company has a huge backlog of work already lined up ($34 billion at the end of the third quarter), helping support its view that it can deliver another year of double-digit earnings per share growth in 2025. That should enable it to continue increasing its dividend (it recently gave investors an 11% raise).
- Eaton (ETN +1.94%): The fund has a 3.5% allocation to this power management company. It makes products for the data center, utility, industrial, commercial, machine building, residential, aerospace, and mobility markets. Eaton is also growing at a healthy pace (8% revenue and 14% earnings per share growth in the third quarter). It also has a strong backlog of work lined up, giving it positive momentum as it heads into 2025. That should enable Eaton to return more cash to investors via dividends and repurchases.
NYSE: TT
Key Data Points
Overall, the fund has a nearly 75% weighting to stocks in the industrial sector and almost 20% to the materials sector. They tend to be cyclical industries that benefit from a growing economy and increasing investment spending. All signs point to more growth ahead in 2025, which bodes well for the stocks in the fund.
A high performer
Picking infrastructure stocks can be challenging due to the cyclicality of industrial and materials stocks. You can be right on the thesis (infrastructure spending will rise) but pick the wrong individual stocks to capitalize on that view, which underperform their peers due to company-specific issues.
Global X U.S. Infrastructure Development ETF takes out that guesswork. Because of that, investors can benefit from holding a basket of companies that should benefit from increased infrastructure investment spending. That has been the case for the fund's holders over the years:
|
Fund |
One-Year Performance |
Three-Year Performance |
Five-Year Performance |
Since Inception (March 2017) |
|---|---|---|---|---|
|
Global X U.S. Infrastructure Development ETF |
36.4% |
18.3% |
21.3% |
15% |
Data source: Global X.
As that table shows, the fund has produced strong annualized returns over the years.
Fund investors are in a solid position to continue earning strong returns in 2025 and beyond. As seen from its top holdings, many of these companies are growing at solid rates, which they expect will continue in 2025. That should enable them to continue investing in growing their businesses and returning excess cash to shareholders via dividends and repurchases.
Paving the way to cash in on infrastructure growth
The Global X U.S. Infrastructure Development ETF enables investors to invest in the nearly $1 trillion U.S. infrastructure spending megatrend. The companies held by the fund should be able to capitalize on opportunities to support infrastructure development, which should drive above-average growth. That should flow down to fund investors, who could continue to earn strong returns from this ETF in 2025 and beyond.
