As President Joe Biden unveils the massive infrastructure package known as The American Jobs Plan, there are some stocks and exchange-traded funds that will benefit.
MarketWatch covered several of the infrastructure-specific ETFs back in November, and they may still be a great place for investors to put money to work.
But there are other funds and thematic approaches that may be a bit less obvious but which should offer excellent returns from the kind of spending Biden is proposing. MarketWatch spoke with CFRA’s head of mutual fund and ETF research, Todd Rosenbluth, for some ideas.
In a release outlining the plan, the Biden administration wrote, “Broadband internet is the new electricity. It is necessary for Americans to do their jobs, to participate equally in school learning, health care, and to stay connected.”
To invest in this theme, Rosenbluth suggests the Defiance Next Gen Connectivity ETF
which has the succinct ticker FIVG. Its holdings are “soup to nuts” companies that stand to benefit from a broader roll-out of data infrastructure, including cellular antennas and routers, mobile network operators, satellite-based communications, cloud computing equipment, fiber optic cables, data center real estate investment trusts, and much more.
FIVG has about $1.1 billion in assets, charges a 30-basis point management fee, and has been around for about two years.
Another option, the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF
is more focused, as the name suggests, on the real estate needed for broadband technology. It’s important to note, however, that SRVR is made up of real estate investment trusts, which have some different implications for investors than straight stocks do.
“President Biden’s plan will eliminate all lead pipes and service lines in our drinking water systems, improving the health of our country’s children and communities of color,” the proposal notes.
“This is an investment theme that I thought was under the radar, but I’m pleasantly surprised to see that this ETF has a billion and a half in it,” Rosenbluth said. The fund in question is the Invesco Water Resources ETF
Rosenbluth calls PHO “extremely diversified” with holdings in water utilities, machinery companies, industrials and materials companies that make the equipment to improve water infrastructure, life sciences tools and much more.
One added bonus of an ETF like this one, he said in an interview, is that they “tend to be cross-sector in nature. You’re surrounding the investment theme and participating in the broader ecosystem connected to that theme between the equipment and services.”
The caveat is that it doesn’t fit easily into existing traditional portfolio designs. “This is not an easy replacement for an industrial sector ETF or for ones that track utilities,” Rosenbluth said. “This is a multi-shaped ETF. Still, it can be a nice complemen to an existing portfolio, particularly for an investor with a long-term horizon.”
PHO also charges a bit more than many ETFs: 50 basis points. It’s been around since 2005, however.
As MarketWatch reported in mid-March, clean-energy ETFs have slumped in recent weeks, even though such spending figures prominently in the American Jobs Plan – and in spite of continued gains for the oil price
At the time, Rosenbluth told MarketWatch, “these are really solid long-term investments.”
In the year to date, some of the most-favored clean-energy ETFs are still down substantially after a big run-up in 2020. The largest, the ishares Global Clean Energy ETF
is nearly 14% lower, for example, while the Invesco Solar ETF
is off 11%.
The group rallied Wednesday after the Biden plan was released, suggesting there’s likely to be upside as the legislation advances. Other funds to consider might be the First Trust Nasdaq Clean Edge Green Energy Index Fund
and the ALPS Clean Energy ETF.
It’s not a sector that’s going to see an immediate jump from the infrastructure spending plan, but transportation will get an indirect boost if materials and workers are moved around the country by plane, train, and automobile — and it will be a beneficiary later of improvements to facilities like roads, bridges, airports, and so on.
“These funds would seem to be latter cycle beneficiaries as opposed to the companies that will improve the roads and infrastructure but they are a clear beneficiary and investing is about the longer term,” Rosenbluth pointed out.
Given their very different makeup, investors should look carefully at the portfolios for these two ETFs. IYT’s top three holdings, for example, are FedEx Corp.
at 12%, Norfolk Southern Corp.
at 11%, and Kansas City Southern
making up 11% of the portfolio.
Kansas City Southern is XTN’s biggest holding, but only makes up 3.2% of the portfolio. Avis Budget Group Inc.
is second, at 2.9%, and Expeditors International of Washington Inc.
a logistics company, is third at 2.8%.