This ETF Theme Drives The World

August 06, 2019

[This article appears in our September 2019 issue of ETF Report.]

Infrastructure is what makes the world go round, really, and the growth of globalization means taking a worldwide perspective on the space for investing purposes makes absolute sense. Buying stock in infrastructure companies is essentially making a bet on development and growth, making it an attractive investment for many.

There are quite a few ETFs covering the global infrastructure space, but only five have more than $50 million in assets under management (AUM). The largest fund in the space is the iShares Global Infrastructure ETF (IGF), a $3.2 billion fund that comes with an expense ratio of 0.46%, among the highest in the category, though still comparable with most of the  other funds in the space.

Interestingly, the SPDR S&P Global Infrastructure ETF (GII) tracks the same index, and launched almost a year earlier. However, even though it has the lowest expense ratio—0.40%—it has just $337 million in AUM, making it the third-largest fund in the group.

And while IGF has seen more than $350 million in inflows through the end of July, GII has pulled in less than $16 million, despite its lower cost and virtually identical performance. This may partly be due to its liquidity: The smaller fund trades an average of less than $1 million per day—still a perfectly respectable amount—versus an average daily value traded of more than $14 million for IGF (Figure 1).

 

For a larger view, please click on the image above.

 

Holdings
While IGF and GII have roughly 80 holdings in their respective portfolios, the Invesco S&P High Income Infrastructure ETF (GHII)—the smallest of the funds, at $60 million in assets—has just 51 holdings. The second-largest ETF in the group, the $1.3 billion FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA), has the most holdings: 167.

It’s not surprising that, given the rather nebulous definition of “infrastructure,” the holdings are vastly different fund to fund. There is very little overlap in the top 10 holdings of the six funds—and none among the top three holdings—unless you count the two ETFs that share the same index. All of the underlying benchmarks have slightly different focuses.

While most of the indexes select their components and weight them by market capitalization, IGF and GII’s index is tiered, and selects companies based on geography, category and size. GHII is unique in the group in that it selects and weights its components based on dividends.

IGF and GII weight the industrials sector at roughly 42%, with utilities at 41% and energy at almost 17%. These are the only three sectors covered by the underlying index. GHII also only covers three sectors, weighting utilities at nearly 49%, energy at almost 39% and industrials at a little less than 13%. It affords the largest weighting to utilities of any of the funds by far.

Deeper Holdings Dive
NFRA, the fund with the most components, covers eight sectors, while the ProShares DJ Brookfield Global Infrastructure ETF (TOLZ) covers five. All of the funds include industrials, energy and utilities among their top—often only—three sectors, except for NFRA, which bumps energy out of the top three in favor of telecommunications, which it weights at approximately 20% of its portfolio.

TOLZ also has the largest weighting to the U.S., with the country representing well over half the index. NFRA is the only fund that even comes close to that, with a 41% weighting to the U.S. That said, the U.S. is the largest country in each of the five ETFs.

GHII has the lowest exposure to the U.S., weighting it at roughly 30%, nearly as much weight as it affords Canada. Other countries that appear in the top three for each fund include Australia, Italy, Hong Kong and Japan (Figure 2).

Performance & Trading
A couple of funds have noticeably outperformed the category’s benchmark over the different periods shown in Figure 3, especially NFRA and TOLZ. Meanwhile, IGF has exhibited outperformance over the longer term but not so much over more recent periods.

 

For a larger view, please click on the image above.

 

IGF also delivered a 12-month distribution yield of 3.23%, the second highest in the group after GHII, the dividend-focused ETF, which has a distribution yield of 5.12%.

As previously mentioned, IGF is the most liquid of the funds in the group, with a fairly massive amount traded on a daily basis and a narrow spread of 0.04%. GHII, as the smallest fund, is the least liquid, with just a little more than $100,000 in value traded daily, and the widest spread in the group, at 0.47%.

GHII also has the highest PE ratio of the group, at 29.11, and the smallest amount of inflows for the year-to-date period, at $6.7 million. NFRA, the second-largest fund in the group, has the lowest PE, at 19.48, and also saw the most YTD inflows, at $398.2 million (Figure 4).

 

For a larger view, please click on the image above.

 

Selecting A Fund
The various funds in the group could be good choices for a range of investors. IGF is no doubt the best for anyone considering tactical exposure to the infrastructure space, but NFRA has a lot to offer investors given its low PE, solid liquidity and broad exposure. It also has generally outperformed IGF.

Although GII tracks the same index as IGF and has the lowest expense ratio in the group, it’s also slightly underperformed its counterpart.

For investors concerned with income, GHII is likely the best choice, but they should consider that its tradability ranks last in the group. However, if investors favor the utilities sector, that represents almost half of GHII’s portfolio.

And while the U.S. gets the largest weighting of any country in all of the funds, it represents more than half of the portfolio of TOLZ.

For investors with a strong belief in U.S.-based infrastructure companies, or who believe the U.S. is likely to embark on a big infrastructure push, TOLZ could be the way to go.

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