It’s time to pay the piper. Spurred by years of decay in developed countries and the need for brand new infrastructure in emerging markets, unprecedented spending on global infrastructure is coming in the next few decades, explains Tim Begany of Personal Finance.
Economies can’t grow without good roads, pipelines, railroads, airports, and bridges, but the cost will be too large for debt-laden governments to shoulder alone.
Infrastructure-focused companies will be vying to fill a $1.3 trillion-a-year void. Global infrastructure spending now is $2.7 trillion annually but needs to reach $4 trillion a year, estimates the World Economic Forum.
Of the few dozen actively managed ETFs designed to capitalize on infrastructure development, we prefer the iShares Global Infrastructure ETF (IGF) and Lazard Global Listed Infrastructure Portfolio (GLFOX) for retail investors (there’s also an institutional version).
Infrastructure-themed funds are still fairly new and Lazard and iShares are among the most established, with six-year and eight-year track records, respectively.
Both funds offer above-average yields and reasonable operating costs, as well as a choice between active management (Lazard) and passive indexing (iShares).
Lazard’s global infrastructure fund shows how active management can sometimes best indexing. The fund returned almost 19% annually the past three years, more than double the 7% return for iShares ETF.
GLFOX yields 8.4% versus 3% for the iShares fund. Lazard Global is outperforming by completely avoiding the tanking energy sector.
Lazard’s approach typically results in a portfolio of 25 to 50 large dividend-paying infrastructure stocks, primarily in the utility and industrial sectors.
GLFOX currently holds positions in 30 companies, a quarter of which are US-based. The rest are foreign firms in developed countries such as Italy, Germany, France, Japan, and Australia.
The two largest portfolio holdings are Italian companies: Snam (SNM:GR), a natural gas infrastructure developer and Terna (TRN:IM), an electric-grid operator.
GLFOX’s five largest holdings also include two major US infrastructure companies: East Coast railroad and central US electric utility Great Plains Energy (GXP), which yields 2.5% and 3.6%, respectively.
Among the fund’s other infrastructure-related investments are airports, water management systems, telecommunications, and toll roads. At 1.3% of assets, GLFOX’s expense ratio is competitive for an actively managed fund.
Meanwhile, the iShares infrastructure ETF only charges 0.47% for expenses and tracks Standard & Poor’s Global Infrastructure Index of the world’s most readily tradable large-cap infrastructure stocks.
S&P weights the holdings by market value, so the largest have the biggest percentage stakes in the funds.
A third of the 75 components are US companies and the rest are foreign firms primarily in the same developed countries GLFOX invests in.
Like GLFOX, the iShares ETF is made up mostly of stocks in the industrial and utility sectors.
The largest holding, with more than a 5% weighting, is Canadian toll road investor Transurban Group (TRAUF), a 4.1% yielder growing revenue at a high double-digit rate by overseeing Australian highways.
Top holdings also include a leading Italian highway infrastructure firm called Atlantia (ATL:IM), US pipeline operator Kinder Morgan (KMI), and UK-based utility National Grid (NGG). These stocks currently yield between 4% and 7%.
Among the fund’s best-performing Chinese stocks are waste management firm Beijing Enterprises Water Group (0371:HK) and China Gas Holdings (0384:HK), a regulated utility.
Because there’s no way to predict future performance, we recommend splitting your infrastructure investment between the iShares ETF and GLFOX. That way, you’ll win no matter which strategy prevails.
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