Infrastructure ETFs and Their Underlying Indexes– NFRA, IGF, GII and PKB

In this new Trump presidency era, infrastructure became a resounding sound among financial communities, expecting a $100 billion or so capitals being put into wall, airport, highway, tunnel etc. if the new elected will carry out his promise. ETFs wrapped around infrastructure stocks provide a good investment vehicles under this macroclimate, some of the big ones are NFRA, IGF, GII and PKB.

NFRA, the FlexShares STOXX Global Broad Infrastructure ETF, tracks STOXX Global Broad Infrastructure Index. NFRA is very successful since its inception in October 2013, growing into $918 million assets now, and closing to $1 billion.

About the methodology of STOXX Global Broad Infrastructure Index, the base universe is the STOXX Developed and Emerging Markets Total Market (all developed and emerging markets of the STOXX Global Total Market Index). The components are chosen from five infrastructure related synthetic super sectors, which in turn, comprise of 17 synthetic sectors and selected by the free-float market capitalization. Companies must generate at least 50% of their revenues within the following infrastructure specific super-sectors/sectors. The infrastructure sectors are based on a proprietary industry classification of FactSet Revere and are defined as follows:

  • Communication: cable & satellite, data centers wireless, wireless towers, wireline
  • Energy: energy utilities, midstream energy
  • Government outsourcing / social: correctional facilities, hospitals, postal services
  • Transportation: air transportation, passenger transportation, rail transportation, road transportation, water transportation
  • Utilities: waste management, water utilities

 

IGF, the iShares S&P Global Infrastructure ETF, tracks S&P Global Infrastructure Index. IGF is the oldest, largest, and most liquid“fund with $1.58 billion AuM already, it was launched in December, 2007, containing 75 companies. All of these 75 companies must fall under the “infrastructure sectors” defined per Global Industry Classification Standard (GICS), specifically are as follows:

 

  • Oil & Gas Drilling,
  • Oil & Gas Equipment & Services,
  • Oil & Gas Storage & Transportation,
  • Airport Services,
  • Highways & Rail tracks,
  • Marine Ports & Services,
  • Airlines,
  • Electric Utilities,
  • Gas Utilities,
  • Multi Utilities,
  • Water Utilities,
  • Independent Power Producers & Energy Traders, Renewable Electricity,
  • Wireless Telecommunication Services,
  • Integrated Telecommunication Services.

 

GII, the SPDR S&P Global Infrastructure ETF, follows the same index as IGF. Also issued in 2007, the assets it attracted is only $140 million, far less than IGF. GII’s methodology also serves to limit exposure to utilities companies that otherwise dominate the market.

PKB, PowerShares Dynamic Building & Construction Portfolio, is worth being noted as it is conceptually an infrastructure fund too and was launched in October 2005 by Invesco PowerShare, there are $306 million AuM underneath. It’s an U.S. domestic fund, following the index Dynamic Building & Construction Intellidex co-developed with Factset Revere leveraging a patented granular industry classification system – Hierarchy. The following sectors in Hierarchy are identified to filter out the target companies:

Architectural and Infrastructure Components, Infrastructure Construction, Construction and Engineering > Specialty Contractors,  Finance > Real Estate > Real Estate Investment and Services > Developers, Decking, Construction Wood Products, Asphalt, Cement and Concrete Products, Lime and Gypsum Products, Consulting, Planning and Design, Finance > Real Estate > Homebuilders and Manufactured Buildings, Cabinets and Countertops, Carpet and Floor Coverings, Natural Resource and Construction Machinery > Building and Construction, Building Materials and Garden Equipment and Supplies, Heating and Cooling. Apparently, the granularity of this sector system segregate companies that are more relevant.

Compare the performance of these four ETFs. Surprising to see that PKB outperform all the other three ETFs, especially over the past five years, while the AuM it attracted is far from substantial, if not meager. The granularity achieved from leveraging FactSet Revere hierarchy might have the major contribution. However, the steep expense ratio of 0.63% might be off-putting for investors.

 

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