Best infrastructure ETFs to watch in Q3
How can investors buy into major construction and energy projects around the world?
World economies may be facing a difficult time at present, with a likely recession on the way in the UK and US and tough times in Europe thanks to spiralling inflation and the Ukraine war. However, despite these obstacles, one area where growth remains is global infrastructure.
Across the world, building and construction programmes continue. President Biden, former US president Donald Trump and former prime minister Boris Johnson have all approved major infrastructure programmes in recent years. Indeed, the global infrastructure market was valued at $2.2 billion in 2021, according to Mordor Intelligence, and is forecast to hit $3.4 billion by 2027.
Why ETFs are a good access point
So what’s the best way to invest in the sector? Often exchange-traded funds (ETFs) can be simpler way to access investments in these areas. These are pooled investments, which invest in a portfolio of many different companies – sometimes hundreds – but unlike actively managed funds, they automatically track certain indices. As such, they tend to have lower fees than actively managed funds, which have a human fund manager to pay.
Want to know more about ETFs? IG has a useful guide to them here.
Some of the funds focus specifically on North American infrastructure companies, such as energy and utilities providers, while others invest globally and in different sectors, such as transportation and construction.
Here are three of the top infrastructure ETFs we think might be worth looking at.
iShares Global Infrastructure UCITS ETF
The iShares Global Infrastructure UCITS ETF tracks the FTSE Global Core Infrastructure Index, offering investor access to companies from both emerging and developed economies. It previously tracked the Macquarie Global Infrastructure 100 Index but this was discontinued in 2017.
Launched in 2006, the fund is currently worth $2 billion and it has 234 holdings, with 63.4% of its portfolio invested in US companies and 13.6% in Canadian firms. Around 52% of its holdings are in utilities companies, 23.4% in industrials and 12% in energy providers. Its top ten holdings including Nextera Energy, Union Pacific Corp, American Tower REIT Corp, Enbridge Inc and Duke Energy.
Nextera, a leading clean energy company, is one of US’s biggest capital investors in infrastructure and plans between $50 and $55 billion in new infrastructure investments through 2022. Union Pacific Corporation owns and operates its eponymous railroad infrastructure across America, shipping goods all over the US, while Canadian company Enbridge transports crude oil and natural gas via its network of pipelines and also has substantial offshore wind farms.
The fund has an expense ratio of 0.65% and delivered a return of 6.7% over five years, 5.7% over three years and 2.1% over one year.
Alerian Infrastructure ETF
The Alerian Infrastructure ETF invests in 30 companies in the infrastructure space. Worth $493 billion, it tracks the Alerian Midstream Energy Select Index, investing in energy firms and major pipelines in North America. The fund seeks to provide total return by growing capital and income.
It aims to invest in what it calls the ‘energy renaissance’ in North America, buying into companies that own ‘real assets’, such as pipelines, processing plants and storage tanks, which Alerian believes offer protection against inflation. It also focuses on fee-based firms, which it says are less directly exposed to commodities and provide more stable cash flows than other energy sectors.
Like the iShares fund above, the Alerian Infrastructure ETF’s top ten holdings include Canadian pipeline and offshore wind provider Enbridge, which is its biggest holding.
However, it also holds major stakes in Enterprise Product Partners, a midstream crude oil and natural gas provider based in Texas, Calgary-based TC Energy Corp, which operates oil and gas pipelines, storage facilities and power stations, Energy Transfer LP, which has one of the biggest energy portfolios with assets in 41 states, Canada and Beijing and Cheniere Energy, which produces and transports liquefied natural gas.
It has an expense ratio of 0.4% and delivered an annualised return of 7.9% over one year, 4.9% over three years and 3.1% over five years.
SPDR S&P Global Infrastructure ETF
Unlike the previous ETF, which focused solely on North American companies, SPDR’s fund invests in a diversified portfolio of infrastructure firms across the globe. Founded in 2007 and worth $556.9 million, it tracks the S&P Global Infrastructure Index, which includes 75 of the world’s biggest infrastructure stocks. Holdings are diversified across the utilities, energy and transportation infrastructure sectors.
Around 40% of its holdings are in the US, with 10% in Canada, 9.3% in Australia, 7.4% in Italy and 6.6% in Spain. However, it also has investments in Mexico, Japan, the UK, China and Singapore.
Its biggest investment is in Australian company Transurban, which operates toll roads in its home country and in Canada and the US. Among its other top ten holdings are Italian holding company Atlantia Spa, which manages motorway, airport and transport infrastructure, including Ciampino and Nice Airports in Europe, Spanish firm Aena, which manages 46 airports and two heliports in Spain, Getlink SE, the Paris-listed former Eurotunnel and US energy provider Dominion Energy Inc. SPDR S&P Global Infrastructure ETF also has investments in Enbridge, Nextera Energy and Duke Energy.
The fund’s gross expense ratio is 0.4% and the ETF has delivered an annualised return in net asset value of 4.85% over one year, 2.8% over three years and 4.1% over five years.
Want to read more about ETFs? Here’s our recent article on the best green ETFs for Q3.
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