America’s infrastructure needs help. Political leaders in both parties have suggested spending plans that would improve transportation, energy, and other systems that affect our day-to-day lives. This could be a good time to check out the best infrastructure ETFs for your portfolio.
What Are Infrastructure ETFs?
Infrastructure ETFs are exchange-traded funds that invest mostly in the stocks of companies that build and maintain the basic physical foundations of the economy: transport, energy, water, and more. These industries may include railroads, utilities, construction, and others that can benefit from infrastructure activities.
Like many ETFs, infrastructure ETFs often track an underlying index. The SPDR S&P Global Infrastructure ETF tracks the S&P Global Infrastructure Index.
Some of the top stocks you’ll find in this area include NextEra Energy (NEE), Enbridge Inc (ENB), and Transurban Group (TRAUF).
Most of the infrastructure ETFs on the market consist of holdings from all over the world. But they're often focused on developed locations like the U.S. and Europe.
The Outlook for Infrastructure ETFs
The U.S. scores a C- in this field, according to an Infrastructure Report Card from the American Society of Civil Engineers. President Trump and President Biden have both supported infrastructure plans that call for more than $1 trillion in funding.
The nation’s low grade, plus the chance for massive infrastructure packages, could translate into a boost for these stock ETF values.
These ETFs may invest globally, so exposure to U.S. domestic stocks may be limited to less than half the total portfolio. But exposure to various countries and regions around the world can be a good way to build a 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 focus on holdings in the U.S.? Second, it’s wise to choose ETFs that are issued by a reputable firm that has a solid track record of performance.
We've reviewed only the top eight with inception dates prior to January 1, 2020, in our list of the best of these ETFs. This eliminates infrastructure ETFs that have very little history. We then added two of the largest ETFs that invest around the world, and one that focuses on U.S. stocks.
Here are some of the best infrastructure ETFs available under these guidelines.
You'll like what you see in this fund if you want an ETF with a long track record, international diversification, and low expenses. GII opened to new investors in 2007. It tracks the primary world benchmark for these stocks, the S&P Global Infrastructure Index. U.S. stocks receive the highest allocation by region at 42.42%. The gross expense ratio for GII is 0.40%.
This ETF tracks the S&P Global Infrastructure Index. It invests in over 70 companies that are in developed countries, such as the U.S., Canada, Australia, and Spain. Its one-year average annual rate of return is 22.42% as of June 30, 2021. Its 10-year average annual rate of return is 5.45%. The expense ratio for IGF is 0.43%.
IFRA is one of the only ETFs that's designed to gain from an increase in U.S. infrastructure spending. It focuses its holdings only on domestic stocks. This reduces diversification, but it should increase gains if Congress should pass a large spending package.
One slight drawback for IFRA is that it has only been open to investors since 2018. But the fund is offered by Blackrock’s iShares, one of the largest ETF companies in the world. Expenses for IFRA are low at 0.40%.
- Infrastructure ETFs can help you gain from increases in government spending on infrastructure.
- Government spending packages can be hard to pass.
- As with other sector funds, you'd be wise to use infrastructure ETFs as diversification tools.
- Don't allocate 100% of your portfolio to one niche in the market.
NOTE: The Balance doesn't provide tax or investment services or advice. This information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any one investor. It might not be right for all investors. Investing involves risk, including the loss of principal.