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Infrastructure ETFs stand to gain under a Biden presidency: CFRA

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Yahoo Finance’s Alexis Christoforous and Todd Rosenbluth, Head of ETF and Mutual Fund Research at CFRA, discuss which ETFs stand to gain under the Biden administration.

Video Transcript


ALEXIS CHRISTOFOROUS: Time now to check in with Todd Rosenbluth, head of ETF and Mutual Fund Research at CFRA. Hey, we just spoke to your buddy Sam Stovall [CHUCKLING] in a previous-- in the previous segment. Todd, always good to see you.

So just give us an overview before we really dive into specific ETFs. How is the market or demand for ETFs shaping up here as we enter the third week of the new year?

TODD ROSENBLUTH: It's been really strong. We saw record inflows in 2020 for equity ETFs, for fixed income ETFs, for thematic ETFs. I could go on on that. And the trend has continued thus far to start 2021.

We've shifted a bit. Some of the themes that are--


--become in focused, of course, moved with the marketplace. But we think infrastructure, which I see you're showing on the screen, is a key theme that we're going to be focusing on in 2021, particularly with the Biden administration and the Democratic-controlled Congress taking this as a higher priority.

ALEXIS CHRISTOFOROUS: What are some areas-- I mean, infrastructure sort of encompasses a lot, right, Todd? Are there areas within that? Can you get a little more niche for us? Where might we see the biggest opportunities during the Biden administration?

TODD ROSENBLUTH: So these ETFs that we're showing on the screen are a combination of industrials and materials companies. In the case of PAVE, which is the Global X Infrastructure ETF, this is our favorite of those three ETFs we're showing on the screen because it's US focused.

So the other ones-- the one from FlexShares and the one from iShares-- are global in nature. So you get a mixture of Canadian companies, European companies. There's some exposure to Japan, as well. And you also get exposure to various different themes, like communication services and, for example, consumer discretionary companies.

We really think PAVE is a great way of focusing on this. You're going to see focus on bridges and road repairs and the companies that are tied to construction equipment, United Rentals, for example. The companies that are tied to the materials that are going to go in doing the roads and bridges are going to really be big beneficiaries of this.

And this is why PAVE has not only done so well, but we've seen strong interest in this. It's now a billion dollar ETF. It gathered over $700 million of net inflows in just the past year. That's tremendous.

ALEXIS CHRISTOFOROUS: It really is. That is tremendous. All right, I want to stick with these thematic ETFs and talk about the environment, climate, ESG. It's been hot for a long time. But now with Joe Biden in the White House, one of the first things he did-- he signed an executive order yesterday-- including the US once again in the Paris Climate Accord. What can you tell us in terms of those ETFs?

TODD ROSENBLUTH: Well, we saw strong demand for this in the fourth quarter. We actually saw the amount of money and amount of assets actually doubled in just the fourth quarter alone for these clean energy-related ETFs because of expectations-- well, and the fact that expectations that Biden would be the winner, that he ultimately was the winner, and then now the Senate has flipped to Democratic control.

So we think that you've got a lot of opportunities here in the global-related products. There's ETFs like PBW that we're showing on the screen here from Invesco, which is our favorite ETF of the three. But we also see exposure more narrowly focused to TAN, which is solar energy-related. And then iShares has a global clean energy ETF, ICLN. So solar, wind, other alternative energies have been in demand.

These-- all ETFs have outperformed in 2020. They more than doubled in value. But we still think there's room to be able to go as, of course, as you mentioned, the Paris Climate Accord is now something that the United States is a part of. So we think there's still a lot of headroom to go for these related ETFs.

ALEXIS CHRISTOFOROUS: You know, I don't know if you'd call it a theme, but something we saw a lot of in the fourth quarter was more companies feeling comfortable initiating dividends again or raising their dividends. Is that something you believe will continue this year? And if so, where might investors want to look in the ETF space?

TODD ROSENBLUTH: Right. So let's just backtrack a slight bit. What we saw in the second quarter, the end of the first quarter and the second quarter, companies were suspending or cutting their dividends, as there was concerns about what was happening with COVID-19 and what impact that would have on the overall US economy.

Fast forward to the fourth quarter, we actually saw 10 times as many companies raise our initiated dividend versus cutting or suspending the dividend. And we saw lots of sectors in the whole year of 2020 with disproportionately more dividend increases-- technology sector, utilities sector to barbel the growth and the more defensive sides of it.

So DGRO has more exposure to those cyclical sectors, like technology. Whereas, NOBL from ProShares is a bit more of a defensive. It requires companies to have raised dividends for the last 25 years. So you'll get exposure to industrials, but you also get exposure to utilities and other companies. Whereas, technology companies haven't been raising dividends for the last 25 years.

We still think 2021 is going to be a great year for dividend investing. Companies that suspended or cut the dividend are likely to stop doing so and, perhaps, maybe if they suspended, reinitiate that growth of what they saw. We think it's really a good time to be a dividend investor using the benefits of diversification that ETFs provide.

ALEXIS CHRISTOFOROUS: All right, Todd Rosenbluth, head of ETF and Mutual Fund Research over there at CFRA. Always good to get your insights.