The Senate is scheduled to vote on passage of a $1 trillion infrastructure spending bill this week, a package that would earmark hundreds of billions in new spending in part for road reconstruction and public equipment for electric vehicle charging. The initial vote marks an agreement in the wake of a politically fraught debate over how much to spend in an era of near-zero interest rates and hot inflation as the U.S. recovers from the COVID-19 pandemic. The debate will likely continue in the House.
ETF.com caught up with Jon Maier, chief investment officer for Mirae Asset Global Investments and its Global X brand of ETFs. The issuer manages the Global X U.S. Infrastructure Development ETF (PAVE) and the Global X Lithium & Battery Tech ETF (LIT), the two ETFs that are most likely to benefit from a boon in infrastructure spending, and Maier talked about where thematic ETF investing is going.
The interview took place on July 22. It has been edited for length and clarity.
ETF.com: PAVE and LIT are potentially two of the funds that are most tied to what's happening in Washington right now. Are you watching what's happening in D.C. all the time?
Jon Maier: They are index funds. We’re managing it in the sense that the index rules dictate constituents of most of our funds. I manage portfolios at Global X that comprise different funds, and some include PAVE or LIT. But we don’t manage those actual funds per se. We do talk about what's going on in Washington and commentary around the sector.
Yesterday [July 21], the GOP blocked debate on the bipartisan infrastructure bill of $1.2 trillion, saying basically it’s incomplete. It was a party line vote and obviously fell short of the 60 votes required under the Senate rules.
[Senate Majority Leader Chuck] Schumer actually switched his vote to no at the end. It was a procedural step that would allow him to move more quickly to reconsider, which obviously is what they’ll do.
[Editor’s note: Republican senators initially blocked the vote, but later agreed to a framework deal that led to a successful vote last Wednesday to begin floor deliberations on the bill.]
President Biden spoke, and he seemed somewhat hopeful. He’s committed to passing some sort of bipartisan infrastructure deal. So, overall, we’re optimistic that once we get past that vote that both sides are going to work together on the coming days. The bipartisan deal, which is the $1.2 trillion infrastructure plan, is certainly alive.
The bipartisan deal is more hardscape infrastructure, whether it be power, broadband, as-is roads, bridges, major projects, public transportation, airports. There’s some money for electric vehicles, but it’s not that much in the bipartisan bill.
The $3.5 trillion bill that potentially could pass through budget reconciliation is broader, and it does focus on [hardscape] infrastructure as well as social infrastructure. There's home care, affordable housing, education, child care—things like that—as well as more exposure to clean energy and more forward-looking aspects. It actually focuses a little more on LIT than it would on PAVE.
ETF.com: Are politics the topic du jour when you're fielding calls about these funds from advisors?
Maier: It’s a component, talking about politics. With respect to where certain bills stand, if you look at the constituents of PAVE, they're industrial companies and material companies, and information technology, to a smaller degree. The bulk of it is industrials and materials. When the market moved towards value, this fund benefited.
So yes, it would be positively impacted by a spending bill, but there was a value shift for a period as the economy reopened and some of these companies really benefited, even if certain companies are facing bottlenecks in the supply chains.
There are not many shovel-ready projects, so infrastructure is a long-tail spending process. There are environmental studies that go into building a project. Unless that stuff’s already been approved, it takes quite some time for those projects to get to the point of implementation or shovel-ready.
ETF.com: Let’s take stock of the first half of the year. Global X is heavy on thematic ETFs. What about that portion of the ETF industry has changed? And how has it performed, compared to periods past, so far this year?
Maier: There is just a broad swath. Global X has 84 different funds at this point. Roughly half of our assets at this point—$35 billion—are in thematic ETFs. LIT, for example, is our largest ETF, at $4 billion. The second largest is PAVE, which has just about $3.9 billion.
“Thematic” can mean many different things. There’s thematic disruption, which focuses more on technology, and there are funds in demographics or infrastructure. It really depends on the underlying components of each area. So PAVE has benefited from the talks about infrastructure, then the shift for its value.
There have been increased EV electric vehicle purchases, large-scale energy and storage system projects, discussion of climate change and renewables, and how a new generation of batteries will fuel these different technologies, be it solar or electric vehicles. That’s a different segment, but it’s certainly pushing the narrative.
Artificial intelligence and robotics during the pandemic certainly being less exposed to each other is important. Semiconductor shortages impact some of these sectors too—both positively and negatively. It’s a little more complex than, “How did thematics do?” Thematics aren’t just one thing, they're made up of many different things—and that’s the great thing about thematics.
I run a thematic disrupters portfolio that comprises 10 different themes within that portfolio. Eight of the 10 holdings in the portfolio are Global X ETFs. But when you drill down into those ETFs, you’ll see that within, say, robotics and artificial intelligence, that ETF does [offer exposure to] a large amount of disruptions to the industrial sector. But it’s not all industrials, it’s 42% industrials. It’s 41% information technology and exposure to health care, about 13%.
Then you compare something like the Global X Robotics & Artificial Intelligence ETF (BOTZ) to the industrial sector. Obviously there's very little overlap, even to information technology. The great thing about thematics is that you’re getting something very different than the traditional sectors.
We’re using a portfolio like the [Global X Thematic Disrupters portfolio] in conjunction with traditional asset allocation. We have very low overlap, so you're being exposed to a portion of the market that I think you should be exposed to, but you wouldn’t necessarily be exposed to it if you’re just in broad-based indexes.
ETF.com: Global X also filed for a bitcoin ETF. Walk me through the idea behind filing that when there are 13 other issuers that have filed for similar products.
Maier: We believe that Blockchain and Bitcoin cryptocurrencies certainly play a role going forward in the financial ecosystem. We already have the Global X FinTech ETF (FINX), which is about a $1.2 billion fund. We believe fintech is disrupting financials in general, and we want our clients to have a wide swath of opportunities within that area. We’ve been talking to clients about various products. We just felt like that would be additive to our suite.
Obviously, the future of cryptocurrencies is unclear. It’s early on. LIT is our largest fund; it came out in 2010. It took a very long time for the market to be overly interested in electric vehicles and batteries that power them.
You never know when the right time is to bring out ETFs. We put it on the shelf, and perhaps it’s an opportunity going forward in the future.
Contact Dan Mika at [email protected], and follow him on Twitter