Investing in Global Infrastructure: Building the Future Economy

As the U.S. infrastructure package has been in the headlines for the past few months, many investors are looking for exposure to applicable infrastructure investments. However, there has been a much broader push for improving infrastructure globally, which has been an issue particularly in emerging and middle income economies that have a growing population in urban areas. The S-Network Emerging Infrastructure Builders Index (EIBI), which is available on the C8 direct indexing platform, provides exposure to infrastructure development companies primarily domiciled in Middle Income countries (as classified by the World Bank). For reference, Middle Income countries include countries such as China (26.1% of index weight), Brazil (9.6% of index weight), Indonesia (5.3% of index weight), and Mexico (5.3% off index weight). Among these geographic areas, the index offers a broad view of infrastructure sectors including: construction & engineering, machinery, construction materials, diversified metals & mining, heavy electrical equipment, industrial machinery, and steel.

According to World Bank data, total population in Middle Income countries grew 11.8% from 2010 to 2020, compared to only 6.5% growth in the United States. Population growth has been particularly strong in urban areas since cities are often a hotbed for jobs, education, and cultural experiences. For example, the percentage of the total population of China in urban areas is expected to grow from 49.2% in 2010 to 70.6% in 2030. As urban areas expand to accommodate a growing population, power generation, water, and transportation systems become more important. Without adequate infrastructure in urban areas, economic development could be constrained. For example, inadequate roads for freight transportation could raise production and shipping costs, which could then lead to inflation. Living standards also need to be suitable enough for a growing population to retain and attract both businesses and consumers.

An index strategy might be preferred for many investors who may find it difficult to pick individual companies within the global infrastructure space. Although foreign companies have English language versions of financial statements available on their website, investors still need to consider finding translated versions of transcripts, understanding different reporting standards (IFRS vs. U.S. GAAP), and other incongruities with domestic stocks. EIBI simplifies this process for investors, while offering true global exposure relative to other global infrastructure indexes. Currently, only 1 out of 87 constituents within the index is domiciled in the U.S. Additionally, the index provides more inclusive exposure to market capitalization with 44.8% small-cap companies, 35.6% mid-cap companies, and 19.5% large-cap companies by portfolio weight. The S&P Global Infrastructure Index (SPGTIND) has more domestic exposure (37% concentration in U.S. stocks as of June 30, 2021) and a tilt toward larger market capitalization. EIBI has also achieved higher total return than SPGTIND over the past five years (64.7% for EIBI and 38.2% for SPGTIND).

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