Infrastructure touches every aspect of our daily lives. Airports, roads, rail, bridges, ports, and transit are crucial for transportation. Utilities such as water, electricity, and gas are essential for daily living. Few modern economies can survive without wastewater, waste treatment, dams, parks, and schools.
U.S. investment in infrastructure is long overdue. According to a report from the American Society of Civil Engineers (ASCE), if Congress maintains current levels of spending, there will be a $3.7 trillion funding gap over the next decade needed to "maintain a state of good repair" in U.S. infrastructure.
Everything points to an ongoing need for investment in infrastructure.
The latest ASCE report notes that the most significant needs for investment over the next decade are in:
- Surface transportation: $3.5 trillion.
- Energy: $1.9 trillion.
- Drinking water/wastewater/stormwater systems: $1.7 trillion.
Given this backdrop, it's a good idea to look at getting broad-based exposure to the theme by investing in infrastructure ETFs.
Top infrastructure ETFs
Investing in an exchange-traded fund (ETF) gives you exposure to a specific industry, theme, or geography. Five leading infrastructure ETFs by assets under management are:
Top Infrastructure ETFs | Ticker Symbol | Net Assets |
|---|---|---|
Global X U.S. Infrastructure Development ETF | $9.6 billion | |
iShares Global Infrastructure ETF | $8.3 billion | |
iShares U.S. Infrastructure ETF | $3.1 billion | |
FlexShares STOXX Global Broad Infrastructure Index Fund | $3 billion | |
SPDR S&P Global Infrastructure ETF | $623 million |
Let's take a more detailed look at each one.
1. Global X U.S. Infrastructure Development ETF
NYSEMKT: PAVE
Key Data Points
The Global X U.S. Infrastructure Development ETF invests exclusively in U.S. companies. It focuses on businesses that will benefit from increased U.S. infrastructure spending.
The ETF's focus also gives its management considerable latitude to invest in a broader range of companies than the others, which are weighted toward utilities, transportation, and energy. In contrast, the Global X ETF has a relatively higher mix of industrial-focused businesses. Its three biggest sectors are:
- Industrials (73%).
- Materials (21%).
- Utilities (3%).
The fund holds about 100 equities. Given its broad focus, it can be considered an ETF tracking the U.S. infrastructure and industrial sectors.
The ETF's holdings are relatively diversified, its positions are small, and it holds many industrial stalwarts, providing broad-based exposure to the industrial sector with a bias to the infrastructure market. That will potentially give it more upside in a bull market for equities, but it means it's not necessarily the best way to get pure exposure.
The ETF has an expense ratio of 0.47%, which is comparable to its peers. However, its wider exposure to equities in the industrial sector means less exposure to traditionally dividend-heavy industries such as utilities and railroads. Consequently, the ETF's yield stands at just 0.5%.
2. iShares Global Infrastructure ETF
NASDAQ: IGF
Key Data Points
The overarching theme of the ETF is to give investors exposure to the megatrend of urbanization and the need to build supporting infrastructure. Consequently, airports, ports, energy, and utilities (electric, water, gas, and renewable energy) are vital investments for the ETF.
You can think of this iShares ETF as a play on global infrastructure spending. Although it may not have the same exposure to the U.S. industrial sector as the Global X ETF, it's more of a pure-play infrastructure ETF.
3. iShares U.S. Infrastructure ETF
The ETF aims to provide investors with broad-based exposure to U.S. companies that benefit from increased domestic spending on infrastructure. Currently holding 151 stocks, with a 1.7% dividend yield, and sporting a relatively low expense ratio of 0.3%, you can think of the ETF as a way to buy the S&P 500, only with stocks that have no exposure to infrastructure spending filtered out.
In a nutshell, it means the ETF's performance is likely to follow the general trend of the S&P 500, but outperform when infrastructure is in favor, and when it's not, it underperforms.
In contrast to the Global X ETF discussed above, this ETF currently has a significantly higher weighting in utilities stocks (almost 44%). If you share the view that utilities tend to underperform in periods of rising rates and vice versa, then it's something to consider before investing.
4. FlexShares STOXX Global Broad Infrastructure Index Fund
NYSEMKT: NFRA
Key Data Points
The FlexShares STOXX Global Broad Infrastructure Index Fund is a global ETF with about 43% of its holdings in the U.S., 11% in Canada, and the rest outside North America. Although its geographic exposure is similar to that of the iShares ETF, one key difference is the heavy exposure to communication stocks.
Energy stocks comprise around 31% of the ETF's 215 holdings, while communication stocks account for 28%. Transportation (21%) and utilities (10%) comprise the other two major sectors. The fund's 0.47% expense ratio is slightly higher than that of the iShares ETF, while its dividend yield of 2.3% is lower than that of its peers.
This FlexShares offering can be viewed as a global infrastructure plus communications ETF. If you're looking for a more pure-play U.S. infrastructure ETF, then the Global X ETF is a better fit. The iShares offering is likely the best global pure-play infrastructure ETF available.
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5. SPDR S&P Global Infrastructure ETF
The ETF aims to deliver a performance in line with the S&P Global Infrastructure Index. As such, only 42% of its holdings are U.S. stocks, and, like the iShares ETF discussed above, it tends to have its 75 holdings in companies in sectors that mimic the market's weighting in infrastructure. That means the largest share of its holdings is in utilities (42%), closely followed by industrials at 38%.
Its expense ratio is decent at 0.4%, and it currently yields 2.9%. It will suit investors who want global exposure in a methodical way, as the ETF's managers do try to tie performance to an index.
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