How to get exposure to a potential $5.7 trillion US sector with ASX ETFs

ASX-listed exchange-traded funds (ETFs) can expose investors to sectors and companies that Aussies normally would need to look overseas for.

The infrastructure sector is responsible for the backbone of the US economy. Plenty of businesses are involved in owning and operating infrastructure, which can be good investments.

The US is the world’s biggest economy and more than 330 million people live there. However, according to the ETF provider Global X, the US is in “dire” need of infrastructure upgrades, with at least US$3.8 trillion ($5.76 trillion) worth of additional investment to “adequately repair existing infrastructure and keep pace with economic expansion.”

Global X also said a growing driver of demand for infrastructure investment is the increased frequency of natural disasters. In 2023, the US reportedly experienced a record-breaking 28 weather and climate disasters, each costing more than US$1 billion.

Which ASX ETFs can be used to take advantage?

Some businesses are involved with infrastructure projects’ construction, engineering, material procurement, transportation, and equipment distribution processes.

These companies can significantly benefit from the increased expenditure on US infrastructure from governments and privately-funded infrastructure projects.

The Global X US Infrastructure Development ETF (ASX: PAVE) invests in US-domiciled companies to capture the value of growing spending in the world’s largest economy.

Some businesses inside the PAVE ETF include Eaton Corp, Trane Technologies, Quanta Services, Martin Marietta Materials, Emerson Electric and Parker Hannifin. It has a total of approximately 100 holdings.

In terms of risks, Global X noted that these companies “typically face intense competition and can be adversely impacted by shifts in government regulations and actions.”

Do other funds provide infrastructure exposure?

Other ASX ETFs and investments can also provide exposure to global infrastructure. The US economy’s size leads to those funds usually having a large weighting to US shares.

Examples include Vanguard Global Infrastructure Index ETF (ASX: VBLD) (with a 68.8% US weighting), VanEck FTSE Global Infrastructure (Hedged) ETF (ASX: IFRA) (with a 57.2% US weighting) and Magellan Infrastructure Fund (currency hedged) (ASX: MICH) (with a 38% US weighting).

While these ASX ETFs have a smaller allocation to US infrastructure, they’re also not targeted at the new spending on infrastructure in the country. Instead, many of the businesses in the portfolios I mentioned have existing assets that are typically generating strong cash flows for shareholders and are hard to replicate.

The post How to get exposure to a potential $5.7 trillion US sector with ASX ETFs appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Emerson Electric. The Motley Fool Australia has recommended Magellan Infrastructure Fund. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.