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Don't Pave Over This Infrastructure ETF

April 5, 2019 2:15 pm
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With the 2020 presidential election cycle already off and running, investors may want to listen for candidates from both parties have to say infrastructure spending.

Infrastructure exchange traded funds typically feature a mix of the industrial and materials sectors, among others, a trait that has been a boon for these funds this year.

What Happened

Among this year's best-performing infrastructure ETFs is the Global X U.S. Infrastructure Development ETF (CBOE:PAVE). PAVE, which turned two years old last month, is a departure from many infrastructure ETFs in that the Global X fund is dedicated to the U.S. infrastructure theme and isn't a global fund.

PAVE is up 19 percent year to date and is outperforming the largest industrial and materials ETFs along the way, a relevant factoid because PAVE devotes about 93 percent of its weight to those sectors.

Why It's Important

Politics affect infrastructure spending and investments, but the good news is that this is one of the rare bipartisan issues.

“The current administration and nearly all 2020 presidential candidates appear supportive of a major US infrastructure package,” according to Global X research. “Business interest in infrastructure investment is similarly high given its potential to boost economic productivity and growth. Indeed, despite partisan bickering, the 2020 federal budget is expected to include at least $200bn for infrastructure, as an early stage bid for the long-dreamed of trillion-dollar deal.”

Even excluding politics, there are plenty of catalysts that could boost infrastructure investments, such as PAVE, over the long-term.

“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,” said Global X.

What's Next

Over the near term, further upside for PAVE largely lies in the hand of railroad operators, which account for almost 16 percent of the fund's weight. Three of PAVE's top 10 holdings are railroad companies.

CSX Corp. (NYSE:CSX), Norfolk Southern Corp. (NYSE:NSC) and Union Pacific Corp. (NYSE:UNP) report first-quarter earnings on April 16, April 24 and April 18, respectively. Those stocks combine for 9.40 percent of PAVE's weight.

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