Lyxor has launched two new ETFs, the Lyxor FTSE USA Core Infrastructure Capped UCITS ETF (LON: BILD) and the Lyxor FTSE Developed Europe Core Infrastructure Capped UCITS ETF (LON: MAKE), tracking companies from the US and European infrastructure sectors respectively.
BILD and MAKE offer exposure to infrastructure companies listed in the US or Europe respectively.
BILD tracks the FTSE USA Core Infrastructure Capped Net Tax Index and MAKE tracks the FTSE Developed Europe Core Infrastructure Capped Net Tax Index, providing exposure to 64 US and 33 developed Europe companies respectively. Each eligible company must derive at least 65% of their revenue from the development, ownership, operation, management and/or maintenance of transportation, energy or telecommunications infrastructure.
The indices cap single constituents at a maximum of 10% and sectors at a maximum of 50%. Lyxor notes that by limiting exposure to the utilities sector, one may be able to better avoid value traps and reduce rate sensitivity. Each index is reviewed semi-annually in March and September.
The US-focused index has currently reached its 50% cap on utilities while industrials (22.6%) and financials (13.7%) make up the next largest sector exposures. For the European index, the largest sectors are industrials (42.4%), utilities (34.4) and, to a much lesser extent, consumer discretionary (9.3%). Spain, the UK and Italy make up the index’s largest country exposures with between 22-25% allocation each.
The European index displays a relatively higher level of stock concentration with Atlantia (10.4%), AENA (8.6%), Abertis (8.4%) and National Grid (8.0%) all taking up significant weights. The US-focused index is more diversified with the largest constituents being Union Pacific (9.2%), American Tower REIT (8.0%), CSX (6.3%) and Kinder Morgan (5.5%).
According to Lyxor, infrastructure companies involved in transportation, energy or telecommunications could be the first to benefit as countries such as America look to replace their aging infrastructure. The firm points to a recent report by PWC, entitled “Capital project and infrastructure spending”, which suggests that infrastructure spending could grow to more than $9 trillion per year by 2025.
Lyxor notes that infrastructure companies may generate a steady source of income which is less sensitive to short-term market cycles and hedged against inflation. This is because projects are typically long term in nature, and contracts are often linked to inflation. In addition, household usage of electricity, gas and water may be relatively constant, providing a regular source of revenue. BILD currently offers a yield of 2.95% while MAKE is providing 4.06%.
Francois Millet, head of product line management – ETFs & indexing at Lyxor, commented: “Our new infrastructure ETFs provide investors access to an increasingly important source of stable, inflation linked returns.”
The ETFs use synthetic replication to track their designated indices and each has a total expense ratio (TER) of 0.50%.
BILD trades in US dollars and is also available to trade in British pounds on London Stock Exchange under the ticker BUIL or in euros on Euronext Paris under the ticker BUIL. MAKE trades in British pounds on LSE and is also available to trade in euros on Euronext Paris under the same ticker.
The funds are the first ETFs in Europe to offer cross-sector plays on infrastructure companies within the targeted regions of the US or Europe. ETF Securities offers the ETFS US Energy Infrastructure MLP GO UCITS ETF (LON: MLPI) which targets US-based MLPs providing infrastructure to the US energy sector. It has a TER of 0.25%.
Several ETF providers also offer funds with access to a global portfolio of infrastructure companies. The iShares Global Infrastructure UCITS ETF (LON: INFR) is the largest with £630 million in AUM. It has a TER of 0.65%. Investors may also wish to consider the db x-trackers S&P Global Infrastructure UCITS ETF (LON: XGID) which has £180m in AUM and a TER of 0.60%; or the Amundi Global Infrastructure UCITS ETF (Amsterdam: GINF) which is cheaper at a TER of 0.55% but has just £10m in AUM.