Time For Global Infrastructure ETFs
This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today's article features Gary Stringer, president and chief investment officer of Memphis, Tennessee-based Stringer Asset Management.
The global economy is stabilizing at a lower, but more sustainable, growth rate than we saw last year. Recent data already suggests that U.S. economic growth is coming back down toward a more sustainable level, which we estimate to be in the 2.0-2.5% range.
Why Infrastructure
This sustainable economic growth will likely be led by a resilient U.S. economy and steadying economic growth in China with the support of government stimulus. But this slower economic growth leaves markets more susceptible to shocks.
As investors, it is important to emphasize areas of consistency and stability rather than areas that are more economically sensitive. We continue to focus on defensive and stable U.S. sources of revenue as well as consistent sources of foreign revenue exposure. Infrastructure is one area that we use to fit this theme.
Asia continually makes the largest investments in infrastructure, and they do not appear to be slowing down anytime soon.
Domestically, airports and air traffic control systems are in serious need of an update. Roughly one-third of U.S. bridges are over 50 years old and it would take more than $100 billion to repair them. There is also a backlog in fixing our roads and electrical lines that needs hundreds of billions of dollars to correct.
As a result, infrastructure is well positioned to benefit going forward as investments are made to upgrade infrastructure beyond the trillions spent globally under current trends.
Picking Infrastructure ETFs
There are several options for investors looking to add a dedicated infrastructure ETF to their portfolio.
A few of those options include the iShares Global Infrastructure ETF (IGF), the FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA) and the SPDR S&P Global Infrastructure ETF (GII).
IGF is the oldest, largest and most liquid fund in the global infrastructure segment, offering good broad access to the space, according to ETF.com. The fund has $2.8 billion in assets, and costs 0.47% in expense ratio.
NFRA tracks a market-cap-weighted index of global infrastructure companies from developed as well as emerging markets, but it tils heavily toward developed economies. The fund has $938 million in assets, and costs 0.47%.
Finally, GII tracks a market-cap-weighted index of 75 infrastructure companies in the energy, transportation or utility sectors, employing constraints to ensure diversification between these sectors. The fund is much smaller, with $321 million in total assets, but it’s also cheaper, at 0.40% in expense ratio.
Year-to-date, these global-in-scope ETFs have each delivered double-digit returns:
Chart courtesy of StockCharts.com
At the time of writing, Stringer Asset Management held NFRA among its universe of ETFs included in its suite of ETF Portfolios. Stringer Asset Management is a Memphis, Tennessee third-party investment manager and ETF strategist. Contact Stringer Asset Management at 901-800-2956 or at info@stringeram.com. For a complete list of relevant disclosures, please click here.
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