Bet on an Infrastructure Bill Before the 2020 Election; Here’s How To Play It
One of the few issues that Trump campaigned on that still remains unaddressed is his promise to repair and rebuild America’s aging infrastructure. It’s been a rare bipartisan topic since 2016 that somewhat paradoxically has struggled to gain real traction; both the Republican-led Congress when Trump was elected and the post-midterms Democratic-controlled one have been entirely inert about its execution despite being agreed on its need.
Things took an encouraging step forward when Democrats and Trump both confirmed a positive meeting back in April in which both sides agreed in principle on a $2-trillion price tag to accompany the infrastructure bill. Trump has since come out with some demands like wanting USMCA to be ratified before proceeding with the bill, but if he can get the House on board — which they claim to be — it’s a near certainty he’ll support it. Trump may be conservative in many regards, but in respect to fiscal/deficit spending he’s anything but.
Couple this partisan harmonizing with the, in my estimation, unwarranted continual chatter about a recession in the face of continued robust U.S. and consumer data, and it’s likely the administration will take steps to proactively push something through, especially prior to the 2020 election.
So we have a perfect confluence of catalysts to pass a substantial, consequential spending bill in the somewhat near term. How can we prepare and invest around it? The iShares U.S. Infrastructure ETF (IFRA) was created precisely to capitalize on this event.
IFRA was created in April 2018 with its stated intent being to give “exposure to U.S. infrastructure companies that could benefit from a potential increase in domestic infrastructure activities”, which is to say exactly the kind of infrastructure spending bill that was previously described. Its YTD performance of 16% has modestly underperformed the S&P’s 19% return; however long-term, broad outperformance is not the impetus for the recommendation. This is an event-driven investment centered around a catalyst that should occur within a year in a half, and will relatively closely track the market in the interim while providing a 1.56% yield.
The fund is quite diversified, with 151 symbols as of this writing, and the largest position, Omnova Solutions (OMN) , constituting just 1.09% of its NAV. The sector weighting is as follows:
Considering IFRA’s substantially broad holdings within all things infrastructure, it’s not exactly an ETF you can go replicate yourself by buying the positions it holds individually. The commission alone for so many different orders would cost much more than the management fee, which is a rather modest .40%.
IFRA, however, should make a prudent investment leading up to the 2020 election as Trump does everything in his power to keep the economic growth flowing to help fuel his reelection.