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Erin Arvedlund: US infrastructure plays may be rebuilt if Congress can pass new bill

Erin Arvedlund, Philly.com on

Published in Business News

Repairing America's infrastructure may be the one thing Congress can agree on.

So let's look at different ways investors can take advantage of possible government-sponsored funding for infrastructure, whether through paving roads, building bridges, imposing tolls, dredging rivers, creating logistics, and even operating computer server farms.

Rep. Harley Rouda, D-Calif., said last week that infrastructure may be the only issue on which Republicans and Democrats can come together, appearing on TV with Rep. Rob Woodall, R-Ga.. Both sit on the House Transportation and Infrastructure Committee.

Look under the hood on these exchange-traded funds and avoid those that have less than $50 million in assets. Tiny funds may not trade very often, which can affect your purchase and sales price in an illiquid market.

Invesco S&P High Income Infrastructure ETF (GHII) has just $58 million in assets, and its holdings are more aligned with utilities and oil and gas. Brookfield Global Infrastructure ETF (TOLZ) has $99 million in assets, and also holds financials and industrials.

TOLZ focuses on companies whose assets include airports, toll roads, ports, communications, electricity distribution, oil and gas storage and transport, and water in developed and emerging markets. Companies must derive more than 70% of their cash flows from infrastructure assets, and are excluded if they supply services such as construction and engineering to the infrastructure industry.

Global X U.S. Infrastructure Development ETF (PAVE) and iShares U.S. Infrastructure ETF (IFRA) derive significant revenue from within the United States. IFRA, for example, is a nuts-and-bolts type of portfolio, holding engineering and consulting firm NV5 Global, the Cadiz water utility, and Global Brass & Copper Holdings.

Many of these may have risen in price already. SPDR S&P Global Infrastructure ETF (GII) and iShares Global Infrastructure ETF (IGF) rallied in advance of a possible infrastructure deal. PAVE spiked in price earlier this year when President Donald Trump and congressional Democrats agreed to spend $2 trillion to improve infrastructure. PAVE holds companies such as Vulcan Materials, the CSX and Norfolk Southern railroads, Eaton Corp., Martin Marietta Materials, and Fastenal Co.

"Politics aside, demand for infrastructure investment is driven by several factors, including demographic trends, depreciation of existing infrastructure, environmental risks, changing preferences, and advances in technology," notes ETF ThinkTank.com, a blog covering exchange-traded funds. Accordingly, watch for near- and long-term catalysts to fuel demand for modernization.

 

In practice, you can bypass ETFs and consider underlying stocks, such as Great Lakes Dredge & Dock (GLDD), which reported a strong first quarter. The company is the largest dredging concern in the U.S.

Or there are subsectors of infrastructure, such as defense contractor and engineering ETFs like iShares U.S. Aerospace & Defense ETF (ITA) and Vanguard Industrials ETF (VIS). The latter is heavily weighted towards Boeing, its largest holding at 7% of the portfolio, along with railroads and blue chips such as 3M Co., Honeywell International, and United Technologies Corp. Fidelity's version of an industrials ETF, Fidelity MSCI Industrials Index ETF (FIDU), holds extremely similar companies, as does the iShares Global Industrials ETF (EXI).

There are even ETFs that track sectors affected by legislation. EventShares U.S. Policy Alpha Fund (PLCY) invests in market segments impacted by U.S. government policy and regulation.

Finally, consider research into computer servers, cell towers, and other key data and communications infrastructure. That is the thesis underlying tiny fund SRVR, the Pacer Benchmark Data & Infrastructure Real Estate ETF.

We're not recommending purchase or sale of any of these -- this is merely a starting point to do research into infrastructure plays that may benefit from congressional help.

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