Clinton & Trump Can Agree On Infrastructure ETFs

The 2016 presidential election is shaping up to be one of the most contentious in modern history. It's no surprise that the two major-party candidates, Hillary Clinton and Donald Trump, have staked out opposing views on many of the most important issues.

But though they're polar opposites on many things, there are a few areas of common ground between candidates. One of those is the need to fix the country's infrastructure. Both Clinton and Trump are promising to spend hundreds of billions of dollars on infrastructure if they are elected.

Clinton has proposed a five-year $275 billion plan to repair and expand roads and bridges, modernize the airspace system, connect all Americans to the internet, and more.

Trump has promised to spend at least double Clinton's numbers, suggesting infrastructure spending of $550 million or more if he is elected.

Based on the candidates' promises, it looks like infrastructure spending is poised to jump significantly no matter who is elected as the next president on Nov. 8 (as long as Congress approves).

Largest ETF Good, But Not A Perfect Fit

With so much money aimed at infrastructure spending, the natural question is, how can investors capitalize on it? In the ETF universe, there are several funds designed to target stocks of infrastructure-related companies―those that will certainly be beneficiaries of any significant boost in government spending.

However, none of these ETFs is a perfect fit. Take the largest of the bunch, the $1.1 billion iShares Global Infrastructure ETF (IGF), which tracks the S&P Global Infrastructure Index. In its basket, IGF holdings include companies that not only operate in the U.S., but around the world.

The ETF's largest holding, Transurban, manages and develops urban toll road networks in the U.S. and Australia. IGF's second-largest holding is Kinder Morgan, the largest energy infrastructure company in America, while its third-largest holding, Atlantia, manages toll roads in Brazil, Chile, India, Italy and Poland.

IGF's global focus dilutes the exposure an investor gets to increased U.S. infrastructure spending―the ETF has a 38.5% geographic weighting to the U.S.―but it's still one of the best funds in the space.

Other Options

Aside from IGF, there's another eight infrastructure-focused ETFs. The $665 million FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA), with a 40% weighting to the U.S., is the second-biggest.

The main difference between IGF and NFRA is the latter's large exposure to telecommunications firms. For example, AT&T, Verizon and Comcast are NFRA’s top three holdings, with a combined 13% weighting in the fund.

The remaining infrastructure ETFs on the market are all much smaller than IGF and NFRA. For example, the third-largest is the SPDR S&P Global Infrastructure ETF (GII), a fund with only $88 million in assets, and which tracks the same index as IGF.

All nine available infrastructure ETFs are either global in scope or target emerging markets specifically. There's no exchange-traded fund that focuses solely on U.S. infrastructure.

Strong Performance Thanks To Election & FAST Act

Performancewise, infrastructure ETFs are up strongly this year, with gains of 8.6% to 26.1% for the seven global-focused funds in the space. That's more than the 6.8% year-to-date gain for the SPDR S&P 500 ETF (SPY).

YTD Returns For IGF, NFRA, FII, TOLZ, GRID, GHII, DBIF

In addition to anticipation of increased spending in a President Clinton or a President Trump administration, these ETFs may have also gotten a lift from the FAST Act, signed by President Obama in December 2015.

That five-year bill, formally known as the Fixing America's Surface Transportation Act, provided $305 billion to improve the country's highways, transit systems and federal passenger rail network. According to the American Society of Civil Engineers, the FAST Act covered the longest period of time of any transportation authorization bill since 2005.

Contact Sumit Roy at [email protected].