Best Infrastructure ETFs for Q4 2021

Infrastructure exchange-traded funds (ETFs) provide exposure to companies that build and maintain major projects and systems such as roads, bridges, waterways, railways, communication networks, and electricity systems. Companies in the infrastructure sector include Dominion Energy Inc. (D), Fortis Inc. (FTS), and Consolidated Edison Inc. (ED).

Investors seeking to own a diversified basket of infrastructure companies, rather than betting on an individual stock, might consider an infrastructure ETF.

Infrastructure companies are likely to benefit from a $1 trillion infrastructure bill, passed by the U.S. Senate in early August 2021, that would be aimed primarily at boosting transportation and community infrastructure, including: building, repairing, and upgrading highways; providing affordable housing; building new schools; and more. Still, despite bipartisan sponsors, the bill could face opposition and may change.

Key Takeaways

  • The infrastructure sector underperformed the broader U.S. stock market over the past year.
  • The infrastructure exchange-traded funds (ETFs) with the best one-year trailing total return are GRID, PAVE, and IFRA.
  • The top holdings of these ETFs are Eaton Corp. PLC, Nucor Corp., and Sunnova Energy International Inc., respectively.

Nine distinct infrastructure ETFs trade in the United States, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). The infrastructure sector, as measured by the S&P Global Infrastructure Index, has underperformed the broader U.S. stock market over the past 12 months, with a total return of 20.2% compared to the S&P 500’s total return of 36.3%, as of Aug. 3, 2021. The best-performing infrastructure ETF, based on performance over the past year, is the First Trust Nasdaq Clean Edge Smart GRID Infrastructure Index Fund (GRID).

We examine the best three infrastructure ETFs below. All numbers are as of Aug. 3, 2021.

First Trust Nasdaq Clean Edge Smart GRID Infrastructure Index Fund (GRID)

  • Performance Over One-Year: 67.9%
  • Expense Ratio: 0.70%
  • Annual Dividend Yield: 0.76%
  • Three-Month Average Daily Volume: 36,574
  • Assets Under Management: $441.9 million
  • Inception Date: Nov. 17, 2009
  • Issuer: First Trust

GRID is a multi-cap blended fund tracking the Nasdaq OMX Clean Edge Smart Grid Infrastructure Index, which consists of stocks in the grid and electric energy infrastructure sector. The index includes companies engaged in electric grids, electric meters and devices, energy storage, and smart grid infrastructure software development, among others. To be included, companies must have a market capitalization of at least $100 million, a minimum free float of 20%, and a minimum three-month average daily dollar trading volume of $500,000.

The top holdings of GRID are Eaton Corp. PLC (ETN), an Ireland-domiciled American multinational power management company; Schneider Electric SE (SU.PA), a global specialist in energy management and automation headquartered in France; and Aptiv PLC (APTV), an Ireland-based auto parts company.

Global X U.S. Infrastructure Development ETF (PAVE)

  • Performance Over One-Year: 67.3%
  • Expense Ratio: 0.47%
  • Annual Dividend Yield: 0.36%
  • Three-Month Average Daily Volume: 1,909,425
  • Assets Under Management: $4.0 billion
  • Inception Date: March 6, 2017
  • Issuer: Mirae Asset Global Investments Co. Ltd.

PAVE tracks the INDXX U.S. Infrastructure Development Index, which provides exposure to infrastructure activity in the United States through companies that provide raw materials and heavy equipment, as well as companies engaged in physical construction and engineering. The ETF is composed of companies with various market capitalizations, and the large majority of its holdings are within the industrials sector, followed by the materials sector.

PAVE follows a blended strategy, investing in a mix of growth and value stocks. Its top three holdings are Nucor Corp. (NUE), a producer of steel and related products; Trane Technologies PLC (TT), an Ireland-domiciled American industrial manufacturing company; and Eaton Corp. PLC, described above.

iShares U.S. Infrastructure ETF (IFRA)

  • Performance Over One-Year: 50.0%
  • Expense Ratio: 0.40%
  • Annual Dividend Yield: 1.61%
  • Three-Month Average Daily Volume: 212,422
  • Assets Under Management: $644.8 million
  • Inception Date: April 3, 2018
  • Issuer: BlackRock Financial Management

IFRA tracks the NYSE FactSet U.S. Infrastructure Index, an index composed of U.S. companies that benefit from increases in infrastructure activity. The ETF provides exposure to a range of infrastructure companies, from railroads and utilities to materials and construction companies, and follows a blended strategy, investing in a mix of value and growth stocks across the market cap spectrum. The fund’s largest exposure is in the utilities sector, followed by industrials and materials.

IFRA’s top three holdings are Sunnova Energy International Inc. (NOVA), a solar energy company; Middlesex Water Company (MSEX), a water utility company; and NRG Energy Inc. (NRG), an integrated energy company.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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