How to bet on the Trump White House.
Donald Trump’s Election Day victory has put several industries in the spotlight, but infrastructure looks to be one of Trump’s major areas of focus. Trump has pledged $1 trillion in infrastructure investment over the next 10 years, and infrastructure even merited a mention in his victory speech. Will Trump actually be able to completely keep his promise? Not likely. But an accommodating Congress should be able to pass something that still results in hundreds of billions of dollars spent on new infrastructure and improvements. Because of that, several infrastructure-themed exchange-traded funds are coming into focus. The question is: Which ones are the real winners?
PowerShares Dynamic Building & Construction Portfolio ETF (ticker: PKB)
When you spend on infrastructure, you spend on the construction companies that build things like bridges, roads, power lines and levees — basically the kinds of companies held in the PKB. This ETF holds 30 companies involved in several aspects of construction, including materials suppliers like Martin Marietta Materials (MLM), designer/builders like Aecom (ACM) and technical professional services firms like Jacobs Engineering Group (JEC). Note: PKB also is exposed to more homebuilding-focused plays such as KB Home (KBH), so not every holding is a sure-fire Trump win. But this still is a rock-solid way to play a Trump infrastructure spend.
Expenses: 0.63 percent (includes 5-basis-point fee waiver)
First Trust ISE Global Engineering and Construction Index Funds (FLM)
The FLM has the same broad theme as PKB, but it’s also a far less direct play on Trump’s infrastructure plans due to the global nature of the fund. In fact, U.S. companies are only weighted at just 20 percent of the fund. So yes, you get companies like JEC and Quanta Services (PWR), another PKB holding. But you also hold companies like China Railway Group and French construction firm Bouygues SA. This too should get at least a little bump from Trump, but really, it’s better used as just a bet on a broad-based global economic resurgence.
Expenses: 0.7 percent (includes 29-basis-point fee waiver)
Industrial Select Sector SPDR Fund (XLI)
The XLI is something of a cheat here, because it’s really a play on two different Trump-centric themes. Yes, it plays on industrials that could see a lift on infrastructure, such as Caterpillar (CAT) and Deere & Co. (DE). But it’s also a play on defense stocks — such as United Technologies Corp. (UTX) and Lockheed Martin Corp. (LMT) — which will also see a significant boost in spending if Trump’s plans come to fruition. No shock, then, that XLI jumped 5 percent in the back half of last week. Just note that XLI is muddied up a bit by non-Trump plays including airlines and delivery services firms.
Expenses: 0.14 percent
iShares Global Infrastructure ETF (IGF)
Yes, the IGF has the word “infrastructure” on it. Despite that, and despite having more exposure to American companies (40 percent) than FLM, IGF might not be the best play on a major U.S. infrastructure spend. That’s largely because IGF only holds one U.S. industrial, with the rest of America’s weight dedicated to energy companies like Kinder Morgan (KMI) and utilities like NextEra Energy (NEE). In fact, you’ll notice that while PKB sprang to life after the election, this iShares fund actually dropped, reflecting uncertain markets in Spain, China, Canada and others that have reacted negatively in the wake of Trump’s election.
Expenses: 0.47 percent
iPath Bloomberg Copper Subindex Total Return ETN (JJC)
While there are numerous other “infrastructure” funds out there, most are built like IGF and thus aren’t really suited to playing an American infrastructure build-out. But you might have more luck playing copper, which has myriad construction uses and typically responds well to large governmental infrastructure spends. Note that copper prices hit one-year highs shortly after Trump won the presidency. The JJC exchange-traded note — which really is bank debt packaged as a product that simply pays out the returns from front-month copper futures — is the most popular way to play copper, at nearly $48 million in assets under management.
Expenses: 0.75 percent
iPath Pure Beta Copper ETN (CUPM)
Because of its methodology, JJC must sell its front-month contract and buy the next front-month contract, regardless of price. This can result in the fund being forced to sell contracts for less than the ones it’s about to buy — a problem known as contango. But iPath offers another, newer product in CUPM, which has a more complex investing strategy that can limit the effects of contango. CUPM invests in many different future-month contracts, giving the fund flexibility in when it buys and sells. The pure beta methodology uses price and other signals to determine how it will trade futures contracts.
Expenses: 0.75 percent
United States Copper Index Fund (CPER)
Of the three copper funds highlighted here, CPER is the most direct way to invest in the metal — but oddly, it’s not the “truest.” The CPER is not an ETN, but a limited partnership that actually holds copper futures. That means there’s some potential for tracking error against the underlying index, versus ETNs, which can literally mimic an index. Also, CPER investors must deal with the K-1 tax form. Still, CPER is at least a more flexible fund than JJC, as its methodology allows it to use two to three different contracts to limit contango.
Expenses: 0.8 percent
iPath Bloomberg Aluminum Subindex Total Return ETN (JJU)
Aluminum doesn’t get nearly the recognition copper does for being a construction mainstay, but it’s the second-most widely specified metal in buildings (after steel) and can be used in everything from walls to roofs to supporting structures in homes, buildings and bridges. iPath offers a pair of funds — the JJU, as well as the iPath Pure Beta Aluminum ETN (FOIL) — that track this metal, and they correspond to their copper brethren. Just a warning: Both are extremely illiquid funds, and JJC only gets the nod here because its paltry daily volume (1,400) is still better than FOIL’s (800).
Expenses: 0.75 percent
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8 Ways to Profit From Donald Trump’s Infrastructure Plans originally appeared on usnews.com
