Market Overview

A Dynamic Building ETF

A Dynamic Building ETF

Dating back to last year, infrastructure-related investments have been bid up on expectations that infrastructure spending is slated to increase in significant fashion.

President Donald Trump's infrastructure efforts, which by some accounts will not begin in earnest until next year, are ambitious. On the campaign trail, Trump discussed spending up to $1 trillion on shoring up America's bridges, highways, railroads and more. Building and construction and infrastructure ETFs have also been boosted by Trump's controversial plan to build a wall around the U.S./Mexico border. 

An ETF For Infrastructure

The PowerShares Dynamic Building & Construction Portfolio (ETF) (NYSE: PKB) is one ETF that has benefited from those themes. Year-to-date, PKB is up almost 4.5 percent, and while the ETF is trailing the S&P 500, there are some fundamental factors that bode well for it.

Related Link: Hundreds Of Companies Bid To Build Trump's Security Wall

“The Dodge Momentum Index tracks new construction activity in the US and includes residential and nonresidential building activity. The index tends to lead construction spending by about a quarter. The correlation between the index and construction activity is a robust 0.77,” said PowerShares in a recent note.

“In recent months, the index has seen some of the most vibrant growth rates since the early 1990s, which should augur well for a pickup in construction spending over the coming months, in my view. The index level has been above 140 for four of the past five months — levels not seen since early 2006.”

PKB's Strategy

PKB tracks “companies that are primarily engaged in providing construction and related engineering services for building and remodeling residential properties, commercial or industrial buildings, or working on large-scale infrastructure projects, such as highways, tunnels, bridges, dams, power lines, and airport,” according to PowerShares.

A Word Of Caution, And Insight Into The Archiectural Billings Index

Investors should be careful to not view PKB as the most direct ETF play on homebuilders equities. Of the 35 stocks held by the ETF, just three are pure play homebuilders, and that trio combines for just 12.5 percent of the ETF's weight.

With its exposure to materials companies, PKB is levered to increases in nonresidential construction as well.

“Another leading indicator of construction activity is what’s known as the Architectural Billings Index. This index is based on a participant survey that asks architectural firms whether billings have increased, decreased or stayed the same in the past month. A value of over 50 indicates an expansion in billings. The survey tends to lead nonresidential construction activity by nine to 12 months,” said PowerShares.

Investors should also note that PKB is not a large-cap ETF. In fact, more than 89 percent of the fund's holdings are either mid- or small-cap stocks.

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