Go Big and Go Home: Profit From a “Once-in-a-Generation” Investment

“A once-in-a-generation investment in America.”

By now, you’ll know about President Biden’s proposed $2 trillion infrastructure bill – a multi-pronged plan that aims to tackle some of America’s greatest challenges with one swish of a presidential signature.

Which ones? Well, “infrastructure” is a pretty broad term. And in this case, it certainly incorporates many areas.

Rather than list them all, I’ll let a picture tell the story for you and borrow the chart that my old mate and colleague Dave Fessler at Profit Trends used in Monday’s article.

Infrastructure Plan Funding Breakdown

As you can see, it addresses areas you’d typically associate with “infrastructure” – repairing and upgrading America’s decrepit roads, bridges, railways, and transit.

But it also invests in other vital parts of U.S. infrastructure – high-speed broadband, technology R&D, manufacturing, and communities (including affordable housing, rural areas, elderly communities, and communities of color).

A big chunk also designates money to tackling climate change by investing in clean energy and electric vehicle infrastructure.

And if you believe in the “speculate to accumulate” theory, the spending should stimulate GDP growth and create many new jobs.

The $2 trillion would be spent over 8-10 years, and paid for through a proposed corporate tax rate hike from 21% to 28%, a 15% tax on book income, and raising the minimum tax on U.S. multinationals. The White House says this would offset the cost of the bill over 15 years.

Now, I’m not going to wade into the hot political potato debate over what’s in and out of the bill, whether it’s too expensive, or the tax stuff. That’s a weekend-ruiner.

But after Congress has haggled its way through the proposals, the bill will pass in some form or other.

America may not agree on much these days, but we all know our crumbling infrastructure desperately needs an overhaul. And aside from the usual boring bickering in Congress, it’s essentially a bipartisan issue.

The question is: Does this “once-in-a-generation investment in America” also give investors a similar opportunity in the companies that will lead this movement?

In a word: Yes.

I’m going to follow-up on Dave’s article by giving you a couple more investment ideas.

The Paradox of Choice

With such a large and wide-ranging bill, many sectors, industries, and companies are in strong positions to benefit.

That makes picking the biggest winners a tricky task. Not to mention expensive, given the number of stocks you’d need to buy.

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In case you missed Monday’s issue, Dave favors a “financial one-stop shopping” strategy through an exchange-traded fund (ETF) like this one…

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

You want to talk about being right in the sweet spot here? The fund “seeks to invest in companies that stand to benefit from a potential increase in infrastructure activity in the United States.”

Specifically, it’s stuffed full of 101 infrastructure firms“that provide exposure to domestic infrastructure development… construction and engineering, raw materials, composites and products, industrial transportation, and heavy construction equipment.”

We’re talking about heavyweights like Deere & Co (DE), Vulcan Materials Co. (VMC), and CSX Corp. (CSX), and Union Pacific Corp. (UNP). All of the fund’s holdings are also only listed in the United States and mandated to generate half their revenue from U.S. operations.

It boasts $2.3 billion in assets, a small 0.4% expense ratio, and has plenty of liquidity, with an average 1.9 million shares trading each day. Oh, and it’s already riding theinfrastructure momentum, with a 20% year-to-date gain and 104% in total over the past 12 months.

~ iShares U.S. Infrastructure ETF (IFRA)

Whereas industrial companies make up around two-thirds of PAVE’s portfolio, IFRA’s exposure is half of that. Instead, it diverts more of its portfolio towards utilities. Just over 40%, in fact. That plays into the power grid and clean energy aspects of the infrastructure bill.

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It’s a much smaller fund than PAVE, with just $347 million in assets and around 228,000 trades per day. But its 133 holdings still churn out a stellar performance – up 73% over the past 12 months and 18% year-to-date.

In terms of getting the most bang for your buck, both PAVE and IFRA represent solid investments.

I did look at the FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA) and ProShares DJ Brookfield Global Infrastructure ETF (TOLZ). But as their names suggest, they take more of a global infrastructure focus, which won’t maximize the U.S. spending surge. They’re also more expensive (around $57 and $45 per share, respectively, compared with $25 and $35 for PAVE and IFRA) and more thinly-traded, too.

Big Thinking… Big Investment… Big Profits

America’s infrastructure is tapped out. It’s simply too old and too tired to handle the greater strain from the higher demand placed on it by a rising population. It’s ultimately unsustainable.

Joe Biden has compared the infrastructure bill to previous bold, forward-thinking investments like the interstate highway system and space race.

And while the sticker price of $2 trillion has generated some sticker shock, the spending number may actually rise higher than that in due course.

It all bodes well for the many companies charged with the task of repairing, rebuilding, and upgrading the many parts of our infrastructure that need urgent attention.

And these ETFs provide a quick, easy, and well-diversified way to capitalize on it.

Martin Denholm

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Martin DenholmAbout the Editor

How do you know when you’re officially old? One way is by working in an industry for (deep breath) two decades. That’s what I have in financial publishing – as a managing editor, investment analyst, stock-picker, and all-round foot soldier on various e-letters, newsletters, and trading services.

At Breakthrough Investor, I’ll continue the tradition by bringing you the best investment opportunities across a host of sectors and industries and alerting you to today’s most profitable market trends.

One more thing: I’m from Southampton, England. After graduating from Brunel University in London, I decided to say cheerio to Queen and country and ship out to America. I guess I like it, as I’m a permanent resident now. But don’t worry… I’ll try not to chuck any weird English slang your way, or sound like I’m in Downton Abbey.

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