An ETF To Take Advantage Of “One Of The Largest Infrastructure Build-Outs In History”

According to Goldman Sachs, cities will be on the frontlines of climate adaptation. Urban adaptation will have to follow.

The FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA) is an infrastructure-focused ETF. It tracks the performance of the STOXX Global Broad Infrastructure Index. Investors looking for ESG-positive investments could consider infrastructure given its relevance in urban adaptation following climate change.

The Index offers a diversified representation of companies that generate more than 50% of their revenue from selected infrastructure sectors. These are  Communications, Energy, Government Outsourcing/Social, Transportation, and Utilities.

Why an infrastructure ETF is ESG-friendly

A recent Goldman Sachs report titled “Taking the Heat: Making cities resilient to climate change” put front-and-center the need for climate-related urban adaptation.

As climate change will reshape the earth, cities will be at the frontlines of the ensuing adaptation.

“Because they are home to more than half the world’s population and generate roughly eighty percent of global GDP, cities will find themselves at the epicenter of this challenge,” says the report.

Further, “Urban adaptation could drive one of the largest infrastructure build-outs in history,” predicts Goldman. This build-out will benefit infrastructure funds.

[Related Story: Google parent Alphabet forays into ‘tech-enabled infrastructure’ with Ontario Teachers]

Therefore, the greater resilience to face climate upheavals will need investments in:

  • coastal protection,
  • climate-resilient construction,
  • more robust infrastructure,
  • upgraded water and waste-management systems,
  • energy resilience and
  • stronger communications and transportation systems.

Therefore, improved and adapted urban infrastructure is a natural fallout of sound environmental policy.

Why an infrastructure ETF is investor-friendly

An infrastructure ETF makes investing sense because infrastructure spending by governments is near-compulsory. Additionally, infrastructure companies enjoy relative inelasticity of revenues even when economic cycles are down.

Furthermore, governments choose to boost the economy in such conditions by stepping up spending levels in the economy, and infrastructure spending is an excellent tool for this purpose. This economic reality is one of the factors behind China’s Belt and Road initiative.

Moreover, pre-election spending on infrastructure is a common theme, and this is relevant given that the 2020 election cycle is around the corner.

Year to date, The FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA)  has returned 17.69%.

[Related story: Gatwick Airport: An infrastructure investment that paid off handsomely for CalPERS ]

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