ETFs For The Obama Job Plan

September 08, 2011

Today’s much-anticipated speech by President Obama unveiling his latest jobs plan is not just an opportunity to jockey for political position, it’s an opportunity for investors.

One of the most widely anticipated elements of the new jobs plan is more infrastructure spending. What this means is anyone’s guess, as the term “infrastructure” has turned into a political buzzword right up there with the likes of “pork” and “maverick.”

That said, if the figure the president proposes approaches the $400 billion that many are expecting, the payoffs could be big. So, it’s worth looking at which infrastructure funds stand to benefit the most.

No funds are currently defined in our ETF Classification System as U.S.-infrastructure focused. The only fund that could be mistaken for one is the PowerShares Building & Construction Portfolio (NYSEArca: PKB).

We categorized PKB in the U.S. construction and engineering segment due largely to the fact that it has a 25.93 percent weighting toward consumer discretionary names such as Lowe’s and Home Depot, neither of which are pure infrastructure plays.

Of the global portfolios, the First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index Fund (NasdaqGM: GRID) is the most U.S.-centric, with 52 percent of portfolios assets in domestic companies.

GRID also fits in line with Obama’s green mandate, which was a large part of his platform. As its ticker suggests, the fund focuses very specifically on electrical energy infrastructure. As an investor, you pay for this specialization, as GRID carries a 70-basis-point annual expense ratio. This has a lot to do with its tilt toward smaller companies than its segment competitors, at just over $11 billion in average market capitalization.

The SPDR FTSE/Macquarie Global Infrastructure 100 (NYSEArca: GII) and the iShares S&P Global Infrastructure Fund (NYSEArca: IGF) compete more with each other than with GRID, carrying expense ratios of 0.59 percent and 0.48 percent, respectively.

GII provides exposure to the greatest number of sectors and companies, with 110 holdings, compared with 76 for IGF and 30 for GRID. IGF has the greatest geographical diversification in the segment, although it remains to be seen if this is a benefit if you’re really looking to play a U.S.-jobs plan.

Of course, potential gain shouldn’t be the only focus. Potential portfolio risks should also be considered.

One of the proposals floating around The Street is a retraction of the “subsidies” given to energy companies. Should this come to pass, the restructuring of treatment of foreign taxes paid or depletion allowances for U.S. energy giants Chevron, Exxon and Chesapeake could result in downward revisions to growth and profit estimates.

If such changes come to pass, protection—in the form of sell stops or some other hedge—should be put in place on funds like the Energy Select Sector SPDR (NYSEArca: XLE) and the iShares Dow Jones US Energy Sector (NYSEArca: IYE). And if you don’t own them, wait till the dust settles before you buy.

In the end, the total figure could disappoint, and playing the plan could end up proving to be fruitless. On the other hand, positioning yourself ahead of time could end up saving your year.


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