America’s infrastructure needs help. Political leaders in both parties have suggested infrastructure spending plans that would improve transportation, energy, and other systems that influence our day-to-day life.
This means that now could be an opportune time for you to check out the best infrastructure ETFs for your portfolio.
What Are Infrastructure ETFs?
Infrastructure ETFs are exchange-traded funds that invest primarily in stocks of companies that are engaged in building and maintaining the basic physical foundations of the economy—transport, energy, water, and more. These companies may include railroads, utilities, construction companies, and other businesses that may benefit from infrastructure activities.
Also, like many ETFs, infrastructure ETFs typically track the performance of an underlying index. For example, the SPDR S&P Global Infrastructure ETF tracks the S&P Global Infrastructure Index.
Some of the top stocks you’ll find in infrastructure ETFs include NextEra Energy (NEE), Enbridge Inc (ENB), and Transurban Group (TRAUF).
Most of the infrastructure ETFs on the market today consist of holdings from all over the world, although they are generally concentrated in developed locations like the U.S. and Europe.
The Outlook for Infrastructure ETFs
There is no doubt the U.S. needs to invest in its infrastructure.
According to a recent Infrastructure Report Card from the American Society of Civil Engineers, the U.S. scores a D+. At the same time, presidential candidates former Vice President Joe Biden and Trump support infrastructure plans that call for more than $1 trillion in funding.
The nation’s low grade for infrastructure plus the possibility of massive infrastructure packages could translate into a boost for infrastructure stock ETF values in the future.
Investors should keep in mind that infrastructure ETFs may invest globally, which means exposure to U.S. domestic infrastructure stocks may be limited to less than half of the total portfolio. However, exposure to various countries and regions around the world can be a good way to build a diversified portfolio while still benefiting from infrastructure growth within the U.S.
Best Infrastructure ETFs
Finding the best infrastructure ETF for you depends first on geographic diversification. Do you want exposure to stocks of companies around the globe or do you want to concentrate on holdings in the U.S.?
Second, it’s wise to choose ETFs that a reputable firm issues and that have a track record of performance.
In our list of best infrastructure ETFs, we reviewed only the top eight with inception dates prior to January 1, 2020. This criteria eliminates infrastructure ETFs that have very little history.
We then included two of the largest ETFs that invest globally and one that concentrates on U.S. stocks.
With that in mind, here are some of the best infrastructure ETFs available.
Investors wanting an infrastructure ETF with a long track record, international diversification, and low expenses will like what they see in this fund. Opening to new investors in 2007, GII tracks the primary world benchmark for infrastructure stocks, the S&P Global Infrastructure Index. U.S. infrastructure stocks receive the highest allocation by region at 42.42% of the portfolio. The gross expense ratio for GII is 0.40%.
This ETF tracks the S&P Global Infrastructure Index, and it invests in over 70 companies that are in developed countries, such as the U.S., Canada, Australia, and Spain. While its one-year average annual rate of return is -15.49% as of April 30, 2020, its 10-year average annual rate of return is 4.44%. The expense ratio for IGF is 0.46%.
One of the only ETFs designed specifically to benefit from a potential increase in U.S. infrastructure spending, IFRA concentrates its holdings only on domestic infrastructure stocks. While this concentrated exposure reduces diversification, it increases potential gains should Congress pass a large spending package this quarter. One slight drawback for IFRA is that it’s only been open to investors since 2018. However, the fund is offered by one of the largest ETF companies in the world, Blackrock’s iShares. Expenses for IFRA are low at 0.40%.
The Bottom Line
- Infrastructure ETFs can help you benefit from increases in government spending on improving infrastructure. However, government spending packages can be difficult to pass, especially in contentious political environments.
- As with other sector funds, you are wise to use infrastructure ETFs as diversification tools and not allocate 100% of your portfolio to one niche in the market.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.