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Infrastructure Gets A New Look In This ETF

April 27, 2018 10:28 am
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Infrastructure investing has been made increasingly accessible thanks to exchange-traded funds. The newest member of that group is the iShares U.S. Infrastructure ETF (CBOE: IFRA), which debuted earlier this month.

IFRA tracks the NYSE FactSet U.S. Infrastructure Index, which is an equal-weight index. The new ETF provides “access to two groups of infrastructure companies that are equally weighted: owners and operators, such as railroads and utilities, and enablers, such as materials and construction companies,” according to iShares.

What Happened

As an investing theme, infrastructure has been spent ample time in the spotlight. Whether it's the promise of developing markets spending trillions of dollars to modernize their infrastructure or the U.S. spending potentially hundreds of billions to shore up decrepit bridges, railways and roads, infrastructure is one of those investing ideas that intersects with politics.

“Politicians of both parties agree on little these days, but there has been widespread acknowledgement in recent years that the U.S. needs significant investment in infrastructure, which earned a D plus grade from the American Society of Civil Engineers last year,” said BlackRock. “However, there is currently little consensus about how to pay for it. As a consequence, infrastructure policy in the U.S. continues to remain on hold.”

Why It's Important

One of the cornerstones of President Donald Trump's 2016 campaign was a promise to increase infrastructure spending. While investors are still waiting for that plan to come to fruition, IFRA could be a credible way to play positive infrastructure news.

“Since President Trump was elected promising major investments in infrastructure, investors have eagerly awaited that to come to fruition, recognizing it could have a major impact if enacted thoughtfully,” said BlackRock. “We still believe that the prospects of some sort of infrastructure package look positive. However, it is also important to consider the broader case for investing in infrastructure companies, and to understand the nuances of investing in the asset class.”

What's Next

Often overlooked in the infrastructure equation is that while federal dollars are crucial, the states determine how and where that money is spent.

As for IFRA, there is an element of interest rate sensitivity with the new ETF as it allocates over 41 percent of its weight to the utilities sector. Conversely, the fund is also heavily cyclical with half its weight dedicated to industrial and materials stocks.

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