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U.S. Infrastructure Is Aging And In Dire Need Of A Refresh

By Mary-Lynn Cesar New York Governor Andrew Cuomo and Vice President Joe Biden made a joint appearance Monday afternoon to announce major infrastructure upgrades to LaGuardia Airport. Adding to Biden’s ” third-world country ” description of LaGuardia, Cuomo said the airport was ” un-New York ” and revealed that construction on a new LaGuardia airport will begin next year. The project is expected to cost the Port Authority of NY & NJ $4 billion . LaGuardia is but one example of US infrastructure that badly needs an update. There are the Hudson River rail tunnels -which service Amtrak and NJ Transit trains between New York and New Jersey-the Albion River Bridge in coastal California and the nation’s wastewater and drinking water systems , to name a few. According to the American Society of Civil Engineers’ 2013 report card , which assesses and grades all segments of US infrastructure, things are in poor shape. The overall grade was a D+, and an estimated $3.6 trillion would need to be invested in infrastructure by 2020 to improve the situation. Per Governing.com, the five largest infrastructure projects currently underway in the US are the Dulles International Airport Corridor Metrorail Project, Otay Mesa East port facility construction, modernization of O’Hare International Airport, expansion of the Crescent Corridor freight rail network and replacing the Alaskan Way Viaduct. Combined the projects will cost $21.4 billion. While there are trillions that need to be invested in US infrastructure, the fact remains that they haven’t been yet. Perhaps this is why infrastructure ETFs with exposure to potential US projects haven’t been performing well. In fact, all of the following funds have underperformed the market on a monthly quarterly and year-to-date basis. Could the LaGuardia airport project help some of these ETFs turn things around? Deutsche X-trackers S&P Hedged Global Infrastructure ETF (NYSEARCA: DBIF ) ( Earnings , Analysts , Financials ): Seeks to track the performance of equity securities of infrastructure issuers in developed markets. Net assets under management: $3.53M, most recent closing price: $23.77. The fund has underperformed the market by -3.22% over the last month, -5.54% over the last quarter and -4.66% since the beginning of the year. SPDR S&P Global Infrastructure ETF (NYSEARCA: GII ) ( Earnings , Analysts , Financials ): Seeks to reflect the stock performance of companies within the infrastructure industry, principally those engaged in management, ownership and operation of infrastructure and utility assets. Net assets under management: $97.83M, most recent closing price: $46.08. The fund has underperformed the market by -4.46% over the last month, -8.40% over the last quarter and -3.64% since the beginning of the year. iShares Global Infrastructure ETF (NYSEARCA: IGF ) ( Earnings , Analysts , Financials ): Seeks to replicate the S&P Global Infrastructure Index. Net assets under management: $1.20B, most recent closing price: $40.05. The fund has underperformed the market by -4.09% over the last month, -8.00% over the last quarter and -3.79% since the beginning of the year. ProShares DJ Brookfield Global Infrastructure ET (NYSEARCA: TOLZ ) ( Earnings , Analysts , Financials ): Seeks to replicate Dow Jones Brookfield Global Infrastructure Composite Index. Net assets under management: $25.99M, most recent closing price: $40.55. The fund has underperformed the market by -5.60% over the last month, -10.04% over the last quarter and -7.10% since the beginning of the year. (Monthly return data sourced from Zacks Investment Research. Assets data sourced from Yahoo! Finance. All other data sourced from FINVIZ.) Share this article with a colleague

Inside Guggenheim’s New High Income Infrastructure ETF

The income ETF space remains a favorite among investors as evidenced by the incredible level of interest seen in many of the products in the space. In fact, many issuers have lined up with several new funds focused on income strategies to tap into this sentiment (read: 3 ETFs Yielding Over 6% to Watch as Market Speculates Rising Rates ). This trend continues with Guggenheim which has just launched a fund with global coverage, focusing on the high income space, but with a slight tilt as the fund has a specific sector exposure i.e. infrastructure. In fact, the global footprint made the fund more attractive given the ultra-low interest rate backdrop prevailing in most developed economies. Below, we have highlighted the newly launched fund – Guggenheim S&P High Income Infrastructure ETF ( GHII ) – in greater detail. GHII in Focus This product tracks the S&P High Income Infrastructure Index, focusing on 50 high-yielding global infrastructure companies. These companies are engaged in several infrastructure-related sub-industries, such as energy, transportation and utilities. The individual stocks are moderately diversified as no single security forms more than 5.09% of the total fund assets. Sydney Airport (5.09%), Williams Companies, Inc. (4.99%) and Jiangsu Express Co. Ltd-H (4.79%) are the top three holdings of the fund. As far as geographic allocation is concerned, the U.S. takes the top spot with about one fifth of the basket followed by Australia (14.45%) and China (9.37%). Overall, the fund is spread across 15 countries. Utilities hold the lion’s share followed by Industrials (33.15%) and Energy (16.70%). The fund charges 45 bps in fee. How Could it Fit in a Portfolio? The ETF could be well suited for income-oriented investors seeking higher longer-term returns with low risk. Utilities and infrastructure related stocks are interest rate sensitive and recession resistant in nature. With interest rates being low in most developed nations, the appeal of utilities stocks has increased as these offer steady and strong yields (read: 3 Utility ETFs Surging to Start 2015 ). However, investors looking for a high-growth vehicle may not be satisfied with this product as infrastructure is generally a slow-growth business. Competition The main competitor of GHII is the established iShares S&P Global Infrastructure Index Fund ( IGF ) . This product also focuses in on global utilities ranging from transportation to electricity services, and it has already seen a great deal of interest from investors, as evidenced by its $1.18 billion in assets under management. This iShares fund charges 47 bps in fee. The U.S. takes about 32.8% of the basket followed by Canada (8.33%) and Australia (8.17%). The fund holds 75 stocks in total. The fund yields yielded about 2.98% as of February 19, 2015. The newly launched ETF will also face stiff competition from iShares S&P Global Utilities Index Fund ( JXI ) , which has amassed about $338.3 million in assets. The fund charges 48 bps in fees and yields about 3.67% annually (as of February 19, 2015) (read: FlexShares Launches Global Infrastructure ETF ). Another potentially sound player in the space is SPDR FTSE/Macquarie Global Infrastructure 100 ETF ( GII ) though the fund was behind the newly launched GHII in terms of assets within such a short span. Notably, within just seven days of launch, GHII has amassed about $189 million in assets while GII has garnered $112 million in AUM. So, though competition may be intensifying in the global infrastructure ETF world, GHII is definitely worth a closer look. The product charges reasonably in the space and has an attractive yield, which is drawing investors’ attention. We expect its winning trend to continue in the days to come. Also, most other global infrastructure ETFs have put a large weight on the U.S. unlike GHII. A lower focus on the U.S. market might earn GHII an extra advantage over its peers as the U.S. economy will likely see a rise in rates.

Gain Exposure To U.S. Infrastructure Boom With GII

Summary Poor American infrastructure has an overall Grade of D+ by American Society of Civil Engineers. Congested roads alone cost America $101 billion in fuel and wasted time in 2010 and last major infrastructure work was in 1956 by President Eisenhower. President Obama called for greater infrastructure work in his 2015 State of the Union Address and is expected to push for wider infrastructure development. GII is a global infrastructure ETF loaded with world class infrastructure companies that are likely to be called to service in the upcoming infrastructure upgrade. Investors can add a small position of GII before adding to it. America’s Infrastructure Investment Opportunity The American Society of Civil Engineers (ASCE) is the premier organization with expertise on infrastructure works in America founded since 1852. ASCE produces a grading score of condition and performance American infrastructure every 4 years and the latest report published on 2013 was given an overall grade of D+. Their grading system follows the typical school grades where A represents Excellent, B represents Good, C represents Mediocre, D represents Bad and F represents failing. So American infrastructure is only 1 grade above failure and graded as bad. Before we go further in the economic implication of this state of disrepair for American infrastructure, let us have an idea of the scope of infrastructure by the grades of the categories of Water and Environment, Transportation, Public Facility and Energy below. (click to enlarge) Source: American Society of Civil Engineers ASCE has estimated that America requires $3.6 Trillion of infrastructure investment by 2020 to meet the infrastructure needs of America. This represents a huge investment opportunity which we can tap into through a diversified holding of infrastructure related companies through an Exchange Traded Fund (NYSEMKT: ETF ) which will be recommended at the end of this article. Cost Poor Infrastructure We will use the transportation category with roads in particular to illustrate the cost of poor infrastructure. We are all familiar with traffic congestion during rush hour where we are forced to endure hours on the road. This is a very real life example of the cost of poor infrastructure works. It is estimated that an average of 34 hours spent waiting on roads and burning 1.9 billion gallon of oil costing motorists $101 billion in 2011. 42% of America’s major urban highways remains congested and 32% of major America’s roads remain in poor or mediocre condition. (click to enlarge) This is the result of steadily falling investments on transportation as seen in the chart above. President Obama prevented a temporary boost by adding provisions for transportation investment in the 2009 Recovery Act but they were a short term boost and have since been depleted. Overall they are not sufficient to reverse the aging roads of America. The last major infrastructure work was done 59 years ago when President Dwight Eisenhower signed the Federal Aid-Highway Act of 1956 , which added 41,000 miles of interstate highways that linked different states of America together. It was completed in 1980 and represents 1% of road network in America but it carries 23% of all railway traffic. It was heralded as a major achievement at that time but 35 years later more funds are needed to maintain this vast network of roads. Obama Calls for Action During the State of the Union Address on 21 January 2015 before Congress, President Obama made the following rallying call for the United States to upgrade its failing infrastructure. “21st century businesses need 21st century infrastructure – modern ports, stronger bridges, faster trains and the fastest internet. Democrats and Republicans used to agree on this. So let’s set our sights higher than a single oil pipeline. Let’s pass a bipartisan infrastructure plan that could create more than thirty times as many jobs per year, and make this country stronger for decades to come.” There are various laws that can make this happen including the popular Transportation Infrastructure Finance and Innovation Act (TIFIA) which can be expanded further and modernizing the Federal Financing Bank (FFB) to allow for greater Public Private Partnership (NYSE: PPP ). Australia’s experiment with PPP in the 1990s should be instructive to benchmark expectations of return. Primary infrastructure returned a yield of 7%-8% and secondary infrastructure returned 13%-15%. Obama tried to make transportation infrastructure a priority in 2014 and we expect him to build on his momentum of an improving economy to try again this year in 2015. With third quarter economic growth of 5% at 11 year high, we expect Obama to seal his legacy with a wide range of infrastructure works. Infrastructure ETF Capital protection is the key word for investors and this can be achieved by investing in a diversified portfolio of stocks that an exchange traded fund ( ETF ) can provide. The SPDR S&P Global Infrastructure ETF (NYSEARCA: GII ) includes world class infrastructure companies that are likely to be called upon to build the US infrastructure. The top companies in this ETF include Transurban Group ( OTCPK:TRAUF ) (5.13%), Atlantia ( OTC:ATASF ) (4.14%), Duke Energy Corporation (NYSE: DUK ) (3.54%), Enbridge (3.43%) and Abertis Infraestructuras SA ( OTCPK:ABRTY ) (3.36%). I would provide a brief description of these companies for investors to have an understanding of the types of companies that they are gaining exposure with GII. Transurban manages and develops urban toll road networks in Australia and North America. Atlantia is an Italian company that constructs and operates toll roads. Duke Energy, headquartered in Charlotte, North Carolina, is the largest electric power holding company in the United States. Enbridge is an energy delivery company based in Canada specializing in the transport and distribution of crude oil, natural gas, and other liquids. It has 41.79% weighting in Utilities, 39.79% in Industrials, 17.67% in Energy and 0.76% in Basic Materials. Abertis is a Spanish company that operates motorways in Europe and airports in cities like London and Orlando. (click to enlarge) We can see that GII has been ranging from $47 to $49 past 2 weeks and recent price action have a bullish slant to it. GII is decently priced at with 19 times price earnings and it has a market capitalization of $111.73 million and volume of 2,592. Investors can consider taking a small exposure of GII and look out for further action on the Obama Administration before adding to their position.