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Build Value with Global Infrastructure ETF
09/02/2014 10:00 am EST
When inflation next takes hold, it is much more likely to affect multiple regions rather than a single country; that’s especially true as almost every central bank in the world is pumping money into its economy, trying to stimulate growth, suggests Benjamin Shepherd in Personal Finance.
Just as central banks are thinking beyond the borders of their own nations, so must investors who are concerned about hedging themselves against inflation.
The usual hedges still apply (hard assets, such as mines and infrastructure projects, real estate, metals, and inflation-protected bonds), but your investments must have a more global character to be effective.
The iShares Global Infrastructure ETF (IGF) pays a higher dividend (3.11%), which isn’t surprising given the kind of income-producing assets it owns. Its largest type of holding is transportation-infrastructure companies, which make up more than 40% of assets.
Many of these companies operate toll roads, and they can increase the tolls as inflation increases. It also owns quite a few master limited partnerships.
Transurban Group, the ETF’s largest holding, manages toll roads in Australia and North America. If you ever need to zip around Washington, DC more quickly on the Capital Beltway, you can pay extra to use the Beltway’s HOT lanes, which are operated by Transurban.
Electric utilities account for 20% of the iShares ETF’s assets, including well-known names such as Duke Energy and Southern Company.
The fund tracks the S&P Global Infrastructure Index, which contains 75 of the world’s largest infrastructure companies—the average market capitalization of its holdings is more than $15 billion.
About one-third of the companies it holds are based in the US and most are based in developed markets. However, many of these companies have operations in developing markets, so there’s true global exposure.
And infrastructure is a growth sector. The American Society of Civil Engineers estimates that the US alone faces a $2.2 trillion infrastructure backlog.
As the world economy recovers, governments should have more funds to spend on improving roads, bridges, electrical grids, and water and sewage systems—all of which the iShares ETF has a stake in.
It’s returned 30.25% in the last year and has a five-year average annualized return of 13.43%. For an inflation and global growth play with a nice dividend kicker, we recommend iShares Global Infrastructure Fund up to $50.
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