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 fails to maintain 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." However, even if Congress maintains it, there will be a $2.9 trillion funding gap. As such, everything points to increased spending on infrastructure over time.
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.
Infrastructure ETFs list
Top Infrastructure ETFs list
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 | Assets Under Management (AUM) |
|---|---|---|
| Global X U.S. Infrastructure Development ETF | (NYSEMKT:PAVE) | $8 billion |
| iShares Global Infrastructure ETF | (NASDAQ:IGF) | $3.7 billion |
| FlexShares STOXX Global Broad Infrastructure Index Fund | (NYSEMKT:NFRA) | $2.3 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 is different from others in that it only invests in U.S. companies. It focuses on businesses that will benefit from an increase in U.S. infrastructure spending. In a nutshell, Global X stands to gain the most from infrastructure investment.
The ETF's focus also gives its management a lot of 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 four biggest sectors are:
- Construction (18.7%).
- Electrical equipment (16.1%).
- Machinery (15.8%).
- Metals & mining (10.2%).
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:
- Heating, ventilation, and air conditioning company Trane Technologies (TT 0.01%): 3.7%.
- Equipment rental company United Rentals (URI 0.87%): 3.3%.
- Motion and control technology company Parker Hannifin (PH 0.44%) 3.3%.
- Electrical equipment company Eaton Corp (ETN -0.78%): 3.3%.
- Infrastructure services company Quanta Services (PWR -1.0%) 3.1%.
The ETF's holdings are relatively diversified, its positions are small, and it holds many industrial stalwarts. For example, automation and climate control company Emerson Electric (EMR 2.39%) and automation and motion control company Rockwell Automation (ROK 1.28%) have a 2% to 3% weighting within the ETF. There's even a place for industrial technology stock Trimble (TRMB 0.55%) in the ETF.
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 0.6%.
2. iShares Global Infrastructure ETF
2. iShares Global Infrastructure ETF
According to the fund's literature, the iShares Global Infrastructure ETF invests in transportation, communications, water, electricity services, and other infrastructure stocks worldwide. However, the fund doesn't appear to have significant communications holdings. About 42% of its holdings are in utility stocks, 37% in transportation stocks, and 21% in energy.
The ETF is global in scale. Only 43% of its 98 holdings are in the U.S. and 8% in Canada; the rest are outside North America. A quick look at its largest holdings demonstrates its international flavor:
- Renewable energy power company NextEra Energy (NEE 0.08%): 5.8%.
- Australian toll road company Transurban Group (TCL 0.63%): 4.8%.
- Spanish airport operator Aena (BME:AENA): 4.7%.
- Energy pipeline company Enbridge (ENB -0.52%): 4.2%.
- U.S. utilities company The Southern Company (SO 0.92%): 3.5%.
The ETF's expense ratio of 0.42% is slightly less than the other two ETFs discussed here. Its exposure to traditionally high-yielding core infrastructure companies helps give it a dividend yield of 3.5%, 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 the 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 is a global ETF with about 42% of its holdings in the U.S., 14% 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 make up around 30% of the ETF's 215 holdings, with communication stocks at a similar level. Transportation (22%) and utilities (10%) comprise the other two major sectors. These industry exposures are reflected in the ETF's top holdings:
- Canadian Pacific Railway (CP 0.24%): 3.5%.
- German telecom company Deutsche Telecom (DTEGY -0.88%): 3.4%.
- Canadian National Railway (CNI 0.62%): 3.4%.
- Entertainment and communications company Verizon Communications (VZ 0.07%): 2.7%.
- Renewable energy power company NextEra Energy (NEE 0.08%): 2.5%.
The fund's 0.47% expense ratio is slightly higher compared to the iShares ETF, while its dividend yield of 2.5% is lower than that of its peer.
The 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 better. The iShares offering is probably the best global pure-play infrastructure ETF out there.
