This ETF Is Betting on Infrastructure No Matter What Trump Does

  • Global X infrastructure fund hits record high as inflows surge
  • Industry seen booming as state governments pick up the slack
Federal Spending Pivotal to an Infrastructure Deal

Regardless of what happens with the Trump administration’s infrastructure plan, investors in exchange-traded funds are increasingly betting on a 2018 construction boom as states and towns move forward with needed development and repair programs.

The Global X U.S. Infrastructure Development ETF, ticker PAVE, has posted a strong performance and attracted four consecutive weeks of inflows since the middle of December, its best-ever run. Its assets have grown 18 percent to $35 million in just the first few trading days of the year.

“A lot of state and local governments are just taking infrastructure under their own budgets because they can’t wait for Washington to address really pressing needs,” Jay Jacobs, director of research for Global X Management Co., said in an interview on Monday. “We are seeing that in Los Angeles, where they passed a $120 billion infrastructure plan in November 2016 purely funded by sales tax increase, because they know how desperately they need infrastructure.” 

PAVE debuted in March and reached a record high on Monday. The fund outperformed the broader market in the second half of 2017, posting a 20 percent return since August compared to 11 percent for the S&P 500, as the political rhetoric veered away from health care and focused back on tax reform and infrastructure spending.

Jacobs is hopeful that the trend will hold as the U.S. works on fixing its roads, bridges, airports and railways. Construction and engineering companies are leading the charge in the massive engineering projects and are set to benefit the most, as well as raw material providers, such as cement and copper companies, Jacobs said. The fund’s biggest holdings are Rockwell Automation Inc., Fortive Corp, Union Pacific Corp., Norfork Southern Corp. and United Rentals Inc.

President Donald Trump is expected to reveal the details of his much-touted infrastructure plan in the coming days. However, the possibility of a “trillion dollar bill” is looking significantly less likely.

In a note to clients published Monday, Barclays Plc analyst Adam Seiden wrote that there was less agreement across and within party lines on infrastructure issues than appears on the surface, and he is “cautiously optimistic” that at least $200 billion to $300 billion of federal funding is probable.

“Getting to $1 trillion, a campaign promise by Mr. Trump, will be more heavily debated,” he wrote.

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