Type to search

Wealthpop News

3 Top Infrastructure ETFs to Own After Senate Passed $1 Trillion Bill

Share

After months of negotiations, the $1 trillion infrastructure bill was passed earlier this week, thanks to a 69-30 bipartisan vote, that will provide the biggest investment in decades in roads, bridges, airports, and waterways. Indeed, while the bill was initially expected to deliver $450b in infrastructure investments, the bill now features $550b of new spending to modernize, develop and improve the U.S. infrastructure. 

As the bill heads toward the U.S. House of Representatives, further amendments might arise before going to vote, given deficit concerns and uncertainty concerning the suspension of the U.S. statutory debt limit. While the bill is not yet fully priced by markets participants, investors looking to benefit from the Infrastructure Investment & Jobs Act should consider adding these three U.S. infrastructure ETFs to their portfolio: Global X U.S. Infrastructure Development ETF (PAVE), iShares Global Infrastructure ETF (IGF) and iShares U.S. Infrastructure ETF (IFRA).

Global X U.S. Infrastructure Development ETF (PAVE):

The Global X U.S. Infrastructure Development ETF (PAVE) seeks to invest in companies that stand to benefit from a potential increase in infrastructure activity in the United States, including those involved in the production of raw materials, heavy equipment, engineering, and construction.

Since the beginning of the year, PAVE jumped 31.5%, outperforming by more than 15% the S&P 500, which advanced 20% in the same period. 

As of today, PAVE’s net assets under management amount to $4.38b, with a total expense ratio of 0.47%. The ETF generates a 30-day SEC yield of 0.61% and distributes it semi-annually. 

The ETF’s top 3 holdings, representing 10.3% of total holdings are Nucor Corp (NUE), one of the biggest steel product companies of the U.S., Eaton Corp Plc (ETN), a power management company helping its customers to manage electrical and mechanical power and Deere & Co (DE), an equipment company providing a range of agriculture and construction machines and service parts. 

In terms of exposition, PAVE’s is invested in 100 U.S. companies and the ETF’s main sector exposure, with a stake of 70.7% is in industrials companies and the second largest is in materials companies, with an exposure of  21.7%. 

On the other side, PAVE’s valuation metrics have somewhat stabilized this year, as the ETF has a mean P/E of 17.9x in 2021 versus 32.9x the previous year and a P/B ratio of 3.21x compared to 3.77x in 2020. 

iShares Global Infrastructure ETF (IGF):

IGF, formerly iShares S&P Global Infrastructure Index Fund (the Fund), seeks investment results that correspond generally to the price and yield performance of the S&P Global Infrastructure Index. The ETF is designed to track the performance of the stocks of large infrastructure companies in developed markets, or whose stocks are listed on developed market exchanges around the world.

IGF underperformed the broader market year-to-date. The ETF gained only 6.5%, whereas the S&P advanced nearly three-time more since the beginning of the year, up 20%.

In terms of assets, the IGF ETF is smaller than PAVE, with assets under management totaling $3.08b. The iShares Global Infrastructure ETF has a more interesting expense ratio than its peers of only 0.43% and provides a 30-day SEC yield of 2.3%.

While IGF has a broader geographical exposition than PAVE, the former also has a preeminent exposure to U.S. companies, representing 38.02% of its total market value. In addition, IGF’s sector breakdown consists of 41.39% utilities, 36.46% transportation, and 21.67% energy stocks, explaining the meager performance of the ETF since the beginning of the year. 

The main components of the ETF include popular stocks and the top three holdings, weighing 15.94% of the ETF are NextEra Energy Inc (NEE), Enbridge Ince (ENB) and Transurban Group Stapled Units (TCL).

Looking at IGF’s valuation, the ETF’s metrics are slightly more affordable than PAVE’s, with a 2021 P/E ratio of 23.05x and a 2021 P/B ratio of 2.17x.

iShares U.S. Infrastructure ETF (IFRA):

IFRA seeks to track the investment results of an index composed of equities of U.S. companies that have infrastructure exposure and that could benefit from a potential increase in domestic infrastructure activities.

The U.S. based ETF outperformed the broader market, S&P 500 Index, and its global peer, the IGF ETF, advancing 22.4%.

IFRA’s assets are significantly less important than its two peers. Indeed, the ETF has net assets only totaling $678m as of today but has the smallest expense ratio of our group, which stands at 0.40%. On the other side, IFRA has an interesting 30-day SEC yield of 1.66%, placing it just below its global benchmark, the IGF ETF.

Besides, IFRA is much more diversified than the two other ETFs, given that it has more than 150 holdings in U.S companies. Indeed, IFRA’s top three lines account for only 2.83% of its total holding and the ETF’s exposure breakdown consists of 44.3% in Utilities, 30.1% in Industrials and 19.3% in Materials. 

In terms of valuation metrics, the U.S. Infrastructure ETF is currently trading at a 2021 mean P/E ratio of 23.62x and a P/B ratio of 2.36x, in line with its global peer, the IGF ETF.

Take away:

Infrastructure in the U.S. has been deteriorating and the sector has been underfunded for the past decades. The approval of the$1 trillion infrastructure bill will contribute to reshaping the future of the U.S., sustaining the long-term growth of the U.S. economy and should translate into higher revenues for companies involved in infrastructure development. In this context, investors can capitalize on this by investing in these three infrastructure ETFs.

Cristian Docan

Cristian is an experienced investment analyst and financial writer. Prior to Wealthpop.com, Cristian spent three years as a consultant providing investment research and content to financial services companies and online publications on the Oil & Gas sector. Cristian enjoys researching and writing about stocks and the markets. He takes a fundamental, technical and quantitative approach in evaluating stocks for readers. Previously, Cristian was Power Portfolio Manager at Engie Global Markets. Cristian started his career in portfolio management at Société Privée de Gestion de Patrimoine, an independent wealth management firm. He received a Bachelor Degree in Economics and Management at Université Panthéon-Assas University and a Master of Science in Financial Markets at INSEEC Business School.

  • 1