Infrastructure touches every aspect of our daily lives. Airports, roads, rail, bridges, ports, and transit are crucial for transportation. Utilities such as water, power, 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
Top infrastructure ETFs
Investing in an exchange-traded fund (ETF) gives you exposure to a specific industry, theme, or geography. The three leading infrastructure ETFs by assets under management are:
| Top Infrastructure ETFs | Ticker Symbol | Net Assets |
|---|---|---|
| Global X U.S. Infrastructure Development ETF | (NYSEMKT:PAVE) | $7.5 billion |
| iShares Global Infrastructure ETF | (NASDAQ:IGF) | $6.4 billion |
| FlexShares STOXX Global Broad Infrastructure Index Fund | (NYSEMKT:NFRA) | $2.4 billion |
Let's take a more detailed look at each one.
1. Global X U.S. Infrastructure Development ETF
1. Global X U.S. Infrastructure Development ETF
The Global X U.S. Infrastructure Development ETF (PAVE 1.0%) differs from others in that it 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. By contrast, the Global X ETF has a relatively higher mix of industrial-focused businesses. Its three biggest sectors are:
- Capital goods (62%).
- Materials (22.3%).
- Transportation (8.6%).
The fund holds about 100 equities. Given its broad focus, it can be considered an ETF tracking the U.S. infrastructure and industrial sectors.
Its top five equity holdings include:
- Aerospace components company Howmet Aerospace (HWM 4.65%): 4.2%
- Industrial fastener supplier Fastenal (FAST 1.6%): 3.5%
- Heating, ventilation, and air conditioning company Trane Technologies (TT 0.66%): 3.4%.
- Agriculture and infrastructure machinery company Deere (DE 0.98%)
- Motion and control technology company Parker Hannifin (PH 1.28%) 3.1%.
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.
The ETF has an expense ratio of 0.47%, which is in line with 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 0.7%.
2. iShares Global Infrastructure ETF
2. iShares Global Infrastructure ETF
According to the fund's literature, the iShares Global Infrastructure ETF (IGF 0.09%) invests in transportation, communications, water, electricity, and other infrastructure-related stocks worldwide. About 42% of its holdings are in transportation stocks, 40% in utility stocks, and 18% in energy stocks.
The ETF is global in scale. Only 39% of its 74 holdings are located in the U.S., and 7% are in Canada; the rest are outside North America. A quick look at its largest holdings demonstrates its international flavor:
- Australian toll road company Transurban Group (TCL 1.02%): 5.3%.
- Spanish airport operator Aena (ANYY.Y -0.15%): 5.3%.
- Renewable energy power company NextEra Energy (NEE -0.06%): 5.8%.
- Mexican airport operator Grupo Aeroportuario del Pacífico (PAC 1.19%): 4.1%
- Energy pipeline company Enbridge (ENB -0.67%): 3.8%.
The ETF's expense ratio of 0.42% is slightly lower than that of the other two ETFs discussed here. Its exposure to traditionally high-yielding core infrastructure companies helps give it a dividend yield of 3%, the highest of the three.
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.
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3. FlexShares STOXX Global Broad Infrastructure Index Fund
3. FlexShares STOXX Global Broad Infrastructure Index Fund
The FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA 0.2%) is a global ETF with about 41% of its holdings in the U.S., 12% 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 30% of the ETF's 215 holdings, while communication stocks account for 28%. Transportation (22%) and utilities (11%) comprise the other two major sectors. These industry exposures are reflected in the ETF's top holdings:.
- German telecom company Deutsche Telecom (DTEGY 0.72%): 4.2%.
- Canadian Pacific Railway (CP -0.66%): 3.9%.
- Canadian National Railway (CNI -0.52%): 3.1%.
- AT&T (T 0.27%): 2.7%
- Waste Connections (WCN -0.85%): 2.6%
The fund's 0.47% expense ratio is slightly higher compared to the iShares ETF, while its dividend yield of 2.3% is less than that of its peer.
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.
