Infrastructure ETFs Can Lean Cyclical, Defensive

Infrastructure ETFs Can Lean Cyclical, Defensive

A comparison of the three dominant infrastructure ETFs. 

Reviewed by: Todd Rosenbluth
Edited by: Todd Rosenbluth

Key Takeaways

Fundamental Context

The U.S. Senate passed the $1.2 billion Investment and Jobs Act last week, and it could become law by fall. If passed by the full Congress and signed by President Biden, the law would result in investments of approximately $260 billion in transportation and transit, $100 billion in digital infrastructure and infrastructure reliance, $90 billion in clean technologies and $85 billion in water infrastructure, according to analysis by asset manager Global X.

Spending would include repairing and replacing roads and bridges; improving Amtrak and public transit; modernizing airports; investing in smart grid technologies; enhancing water distribution and storage; and boosting broadband speeds for all Americans. The diversity of the potential corporate beneficiaries highlights the merits of looking to ETFs.

However, there are 17 U.S.-listed ETFs with infrastructure in their names managing $17 billion in assets. Global X's PAVE is the largest, with $4.5 billion in assets as of Aug. 13 according to CFRA's ETF data, but there are 10 other ETFs with more than $100 million, including products offered by BlackRock, First Trust, Pacer and ProShares.

Some of the ETFs, such as the First Trust North American Energy Infrastructure ETF (EMLP) and the Pacer Benchmark Data Infrastructure Real Estate SCTR ETF (SRVR), are targeted to one sector, while others provide exposure to multiple, but not all, sectors.

Portfolio Differences

PAVE invests in more cyclical sectors than many of its peers. At the end of July, the ETF had 71% of assets in industrials and 22% in materials, with some of the remainder in consumer discretionary and information technology stocks.

PAVE only invests in stocks of U.S. companies. Within industrials, the ETF holds CSX Corporation (CSX), Deere Company (DE), Jacobs Engineering (J) and Trane Technologies (TT); within the materials sector (23%), the fund owns Martin Marietta Materials (ML) and Steel Dynamics (STLD).

IFRA also only invests in U.S. companies but is constructed differently than PAVE. While industrials (30% of assets) and materials (19%) are well-represented in IFRA, the more defensive utilities sector (44%) is the largest, offsetting the cyclical exposure. American Water Works Company (AWK), Cleveland-Cliffs (CLF), Duke Energy (DUK), NextEra Energy (NEE) and Quanta Services (PWR) are examples of the fund's holdings. There is some overlap; for example, both PAVE and IFRA own CSX.

TOLZ is even more defensively positioned at the sector level and provides a distinct portfolio. TOLZ's largest recent sector was also utilities (36% of assets), but the fund had high exposure to strong cash-flow-generating MLPs within the energy sector (28%), such as Enterprise Products Partners (EPD), and real estate companies (18%), such as broadband supportive communications companies like American Tower (AMT) and Crown Castle (CCI).


(Use our stock finder tool to find an ETF’s allocation to a certain stock.)


Meanwhile, the fund had just 13% in industrials and no materials exposure. TOLZ also holds stakes in non-U.S. companies like Cellnex Telecom and National Grid. Infrastructure spending proposals focused on climate change and digital infrastructure have been prevalent in Europe as well.


Sector Exposure Of Select Infrastructure ETFs

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Source: CFRA’s ETF Database, ProShares as of July 31, 2021

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PAVE has generated higher returns than IFRA and TOLZ recently, but has also incurred more volatility. CFRA does not believe investors should rely on just past performance in choosing an ETF, but track records do matter and help demonstrate the need to look inside.

In the one-year period ended Aug. 13, PAVE rose 60%, stronger than the 45% and 19% gained by IFRA and TOLZ, respectively. While IFRA charges a slightly lower expense ratio than its peers (0.40% vs. 0.47% for PAVE and TOLZ), the performance differences are primarily due to the unique portfolios.

However, PAVE's one-year volatility of 23.4 was modestly higher than IFRA's 20.3, and much higher than TOLZ's 13.4. Investors considering these ETFs should understand the risk/reward trade-offs between the more cyclical PAVE, the more defensive TOLZ and the more balanced of the three, IFRA.


Reviewing The Past Year For Select Infrastructure ETFs (%)

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Source: CFRA’s ETF Database as of Aug. 13, 2021

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We expect more investors will be focused on the infrastructure-themed ETF universe, with Congress potentially agreeing to spend more money to support transportation, digital and clean energy infrastructure. However, these cross-sector ETFs come in different packages. Before considering one of them, investors need to understand the risk considerations, reward potential and cost factors.

All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of the analyst's compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. For more information and disclosures, please refer to CFRA's Legal Notice at

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Todd Rosenbluth is director of ETF and mutual fund research at CFRA, an independent research firm that acquired S&P Global Market Intelligence’s equity and fund business in October 2016. Follow him at @ToddCFRA.