With anxiety building ahead of mid-term elections later this year, the Obama administration used the Labor Day holiday to announce a plan designed to kickstart job creation and further boost the economic recovery. The president unveiled on Monday a long-term public works plan to spend as much as $50 billion over the next six years. The plan would emphasize transportation projects, including roads, rail, and airport runways.
According to White House officials, the ambitious plan would include rebuilding 15,000 miles of road and constructing and maintaining 4,000 miles of railway. Also included are goals of rehabilitating 150 miles of airport runway and implementing a system to reduce travel time and frequency of airport delays. Obama’s plan is also expected to include an “infrastructure bank” that would focus on paying for national and regional transportation projects.
The announcement of the public works initiative comes at a time when the country’s infrastructure spending–by some accounts–has fallen far behind an acceptable pace. According to the Infrastructure Report Card put together by the American Society of Civil Engineers, the current infrastructure grade is a “D.” The amount of spending needed over the next five years to bring infrastructure up to an acceptable level tops $2 trillion, meaning that the new proposal would represent only a small fraction of the perceived gap [see Three ETFs For America's Crumbling Infrastructure].
Below, we profile three very different ETFs that could be impacted by developments in America’s infrastructure initiatives in coming years [for more ETF ideas, sign up for our free ETF newsletter]:
PowerShares Dynamic Building & Construction Portfolio (PKB): This fund is part of PowerShares Intellidex suite of ETFs, products that use quantitative methodologies to select individual index components. PKB’s holdings include several firms that could benefit from a surge in infrastructure spending in this country, including engineering giants Fluor and Jacobs and pipeline/sewer expert Insituform.
PowerShares Build America Bond Portfolio (BAB): This fund offers perhaps an unconventional way to play an infrastructure boom: through fixed income securities. BAB invests in taxable municipal securities eligible to participate in the Build America Bond program created under the American Recovery and Reinvestment Act of 2009. Build America Bonds allow state and local municipalities to raise capital at artificially low effective interest rates,as the federal government essentially subsidizes a portion of the borrowing costs. That makes it possible for local governments to finance infrastructure projects and other campaigns that may otherwise be difficult in the current environment.
SPDR Oil & Gas Exploration & Production ETF (XOP): This ETF may seem out of place on this list, but XOP could feel the ripple effects of the latest proposal. Washington’s bank account isn’t exactly flush with cash, so financing a $50 billion plan without further swelling the deficit could prove to be a challenging task. The White House has said it will work with Congress to find a way to pay for the plan without growing the deficit further, and one possibility for doing so reportedly involves cutting existing subsidies for oil and gas exploration and production. It’s difficult to say how big of an impact such a move would have on the components of XOP, but it likely wouldn’t be a positive development.
Disclosure: No positions at time of writing.