ETF Watch: New Global X ETF Targets Infrastructure

March 08, 2017

Today Global X is rolling out an ETF that focuses on infrastructure stocks. The Global X U.S. Infrastructure Development ETF (PAVE), according to its prospectus, is designed to cover the most liquid and investable securities in the field of domestic infrastructure development.

PAVE comes with an expense ratio of 0.47% and is listed on the Bats exchange, which is owned by ETF.com's parent company, CBOE.

With President Trump promising to spend $1 trillion on infrastructure, companies in the space are getting some attention from investors, making this a very timely launch.

“Studies have shown that government spending on infrastructure has a high return on investment,” said Global X Vice President and Director of Research Jay Jacobs. “We believe that, as the nation's infrastructure continues to deteriorate, that there will be a bipartisan push to pass new spending bills to rebuild, improve and expand the nation's infrastructure assets.”

A Focus On Development
Global X is looking to take a new angle with PAVE by targeting a specific slice of the space. The fund’s underlying index, the Indxx U.S. Infrastructure Development Index, includes companies that are involved in construction and engineering; production of infrastructure raw materials, composites and products; industrial transportation; and producers/distributors of heavy construction equipment, according to the prospectus.

“PAVE is designed to provide unique exposure to infrastructure by not focusing on the owners and operators of infrastructure assets, but on the construction, engineering, materials, heavy machinery companies that are likely to be involved in the development stage of new infrastructure projects,” said Jacobs.

Existing funds tend to be more focused on transportation companies, energy companies or utilities rather than companies involved in the development side of infrastructure. Also, most of the funds are global in their focus, while PAVE has a decidedly domestic tilt, with its index requiring that components generate at least half of their revenues from the U.S.

Methodology
Components must have a minimum market capitalization of $300 million and a six-month average daily turnover of at least $1 million. Their primary business or revenue source must be one of the following four areas: (1) construction and engineering services; (2) infrastructure raw materials, composites and products; (3) construction equipment producers/distributors; and (4) industrial transportation, the prospectus said.

The underlying index uses a modified capitalization weighting scheme that limits the weights of individual companies.

The $1.4 billion iShares Global Infrastructure ETF (IGF), the largest U.S.-listed infrastructure ETF, has underperformed the S&P 500 over the past 12 months, up nearly 13% versus 21% for the broad large-cap index. However, unlike PAVE, it does not specifically target domestic development of infrastructure and instead takes a global perspective and a broad approach to infrastructure stocks

Contact Heather Bell at [email protected].

 

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