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These 2 ETFs Could Benefit From Increased U.S. Infrastructure Spending

Published 02/16/2021, 05:22 AM

President Joseph Biden has made it clear that infrastructure, especially for a sustainable economy, is high on his administration's agenda. His policies are likely to incentivize infrastructure development and clean energy technologies.

Therefore today, we are introducing two exchange-traded funds (ETFs) that could appeal to readers interested in companies that might benefit from developments in infrastructure projects, including one fund with a “green” focus.

Shares of transportation companies, such as railroads, communication networks and utilities, as well as builders are part of the infrastructure stock segment. The Michigan Economic Development Corporation suggests:

"Investing in the nation's infrastructure can provide an immediate economic boost and create jobs, but its greatest value lies in supporting economic competitiveness over the long term."

According to the Global Infrastructure Index 2020, a recent survey released by the Global Infrastructure Investor Association (GIIA):

"79% [of the respondents] agree that investment in infrastructure will create new jobs and boost the economy."

Following the end of the pandemic, many global organizations and think tanks are calling for green stimulus and recovery packages from global governments. As PWC points out:

"About 70% of greenhouse gas emissions come from infrastructure... To build a better tomorrow, any infrastructure-related stimulus should therefore be focused on clean energy—decarbonising power, heat and transportation—and business and government will have to work together to achieve these goals."

With that, here are our two exchange-traded funds for today:

1. iShares US Infrastructure ETF

  • Current price: $31.82
  • 52-week range: $16.69 - $32.18
  • Yield: 1.96%
  • Expense ratio: 0.40%

The iShares US Infrastructure ETF (NYSE:IFRA) provides access to US businesses likely to benefit from increased infrastructure activities. Since its inception in April 2018, assets under management have grown close to $212 million.

IFRA Weekly
IFRA, which tracks the NYSE FactSet US Infrastructure Index, has 133 holdings. Around 10% of the fund is invested in the top ten names. Thus, moves in a single stock cannot significantly influence the ETF's price.

Suppliers of building materials Builders FirstSource (NASDAQ:BLDR) and Gibraltar Industries (NASDAQ:ROCK), manufacturer of wood-alternative decking products Trex (NYSE:TREX), infrastructure construction group MasTec (NYSE:MTZ), and Great Lakes Dredge & Dock (NASDAQ:GLDD) lead the names in the roster.

Over the past 12 months, IFRA is up about 10%. In fact, over 6% of the returns came in 2021. The fund's current dividend yield stands at 1.97%. Trailing P/E and P/B ratios are 21.08 and 2.17, respectively, pushing the valuation to the frothy side from a historical perspective. Those investors who believe infrastructure companies could benefit from further government spending in the US would find better value around $29.

2. First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund

  • Current Price: $87.24
  • 52-Week Range: $35.96 - $87.96
  • Dividend Yield: 0.63%
  • Expense Ratio: 0.70%

The First Trust NASDAQ® Clean Edge® Smart Grid Infrastructure Index Fund (NASDAQ:GRID) invests in stocks in the grid and electric energy infrastructure sector. These businesses typically focus on energy storage and management, networks, electric meters, or software for the grid infrastructure sector.GRID Weekly

GRID, which has 64 holdings, follows the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index. The fund started trading in May 2017 and has around $215 million net assets.

In terms of the sub-sectoral breakdown, the electronic equipment sector makes up the highest portion with 15.77%, followed by the electrical components and equipment and diversified industrials sectors with 14.48% and 11.64%, respectively. The fund’s top 10 holding account for 60% of all holdings in the fund.

Ireland-based motor vehicle parts and accessories supplier Aptiv (NYSE:APTV) as well as heating, ventilation, and air conditioning (HVAC) products manufacturer Johnson Controls International (NYSE:JCI), French Schneider Electric (OTC:SBGSY), which provides energy solutions, Switzerland-headquartered electrical equipment and automation products group ABB (NYSE:ABB), and power management group Eaton Corporation (NYSE:ETN) are among the leading names in the fund.

In the past year, the fund is up 49%, benefitting from investor appetite in clean energy sources. It hit a record high in January. A potential short-term decline toward $82.5 would offer a better entry point for buy-and-hold investors. We expect the names in the fund to grow earnings in the coming quarters, too.

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