The Biden administration's $1.9-trillion American Rescue Plan has been signed into law. Now, green energy-focused infrastructure development is likely to occupy an important part of President Joseph Biden's next steps in 2021.
The proposals by the administration will likely have a price tag of around at least $2 trillion. This deficit-financed program is expected to help revitalize the U.S. economy.
Management consulting firm McKinsey highlights:
"In 2015, the nonpartisan Congressional Budget Office estimated that every dollar spent on infrastructure brought an economic benefit of up to $2.20. The U.S. Council of Economic Advisers has calculated that $1 billion of transportation-infrastructure investment supports 13,000 jobs for a year."
Put another way, infrastructure spending is vital for an economy's sustainable growth. We previously discussed exchange-traded funds (ETFs) that could be appropriate for investors who want to gain exposure to businesses that could benefit from upcoming governmental initiatives. Today, we extend that discussion.
1.iShares Global Clean Energy ETF
Current Price: $$24.73
52-Week Range: $8.08 - $34.25
Dividend Yield: 0.33%
Expense Ratio: 0.46% per year
The iShares Global Clean Energy ETF (NASDAQ:ICLN) provides exposure to global businesses that produce energy from solar, wind and other alternative energy sources. The fund began trading in June 2008 and net assets are close to $5.8 billion.
According to the Center for Climate and Energy Solutions (C2ES):
"Renewable energy is the fastest-growing energy source in the United States... Renewables made up 26.2% of global electricity generation in 2018. That's expected to rise to 45% by 2040. Most of the increase will likely come from solar, wind and hydropower."
ICLN, which tracks the returns of the S&P Global Clean Energy Index, currently has 30 holdings. In terms of geographic allocation, businesses from the U.S. top the roster, with more than 35%, followed by China (11.36%), New Zealand (8.17%) and Denmark (7.76%). The top three sectors of the fund include Renewable Electricity (36.86%), Semiconductor Equipment (16.81%) and Electric Utilities (15.03%).
The 10 largest holdings constitute around 50% of the fund. Plug Power (NASDAQ:PLUG), which focuses on hydrogen fuel cell systems; Enphase Energy (NASDAQ:ENPH), which manufactures micro-inverter systems for the solar photovoltaic industry; Austria-based Verbund (OTC:OEZVY), which produces electricity from hydropower; Chinese polysilicon manufacturer Daqo New Energy (NYSE:DQ); and Spanish renewable energy equipment manufacturer Siemens Gamesa Renewable Energy (OTC:GCTAY) make up the leading businesses in the fund.
Over the past year, ICLN has returned about 155% and hit an all-time high in early January. However, since then, profit-taking has kicked in and the fund is down more than 10% in 2021. Given the increased volatility in broader markets, shares that make up the fund are likely to be choppy in the weeks ahead. However, long-term investors might find value around these levels.
2.Global X U.S. Infrastructure Development ETF
Current Price: $$24.41
52-Week Range: $19.77 - $24.94
Dividend Yield: 1.96%
Expense Ratio: 0.40% per year
The Global X U.S. Infrastructure Development ETF (NYSE:PAVE) invests in businesses that could benefit from increased infrastructure activity in the U.S. Such companies include producers of raw material as well as engineering, construction and heavy equipment firms. The fund started trading in March 2017 and has net assets of $1.9 billion.
PAVE, which has 101 holdings, tracks the returns of the Indxx U.S. Infrastructure Development Index. Around 30% of the fund is invested in the top 10 names. Thus, moves in a single stock cannot significantly influence the fund's price.
Largest holdings include: Deere (NYSE:DE), which produces agricultural and construction machinery and heavy equipment; manufacturer of motion technologies Parker-Hannifin (NYSE:PH); power management group Eaton (NYSE:ETN); Emerson Electric (NYSE:EMR), which provides software and engineering solutions that include automation and climate technologies; and Vulcan Materials (NYSE:VMC), which supplies construction aggregates (like crushed stone, sand and gravel) and produces asphalt mix.
Over the past 12 months, PAVE is up about 92%. It hit a record high in March and continues to trade at that level. Given the substantial run-up in price, short-term profit-taking is likely in the weeks ahead. Those investors who believe infrastructure companies could benefit from further government spending in the U.S. would find better value around $22.5. They might want to keep PAVE on their radar.