24 Aug How does the $1T Infrastructure Bill affect your ITC Portfolio?
On Tuesday, August 10th, the U.S. Senate passed a $1 trillion bipartisan infrastructure bill on a 69-30 vote. The Infrastructure Investment and Jobs Act focuses on investment in roads, railways, bridges, and broadband internet among other things. Assuming the bill passes in the House and is signed into law, how could this impact your portfolio with Investment Trust Company? We will take a brief look at three areas that could be affected: the economy as a whole, traditionally defined infrastructure (roads, bridges, etc.) and newer more niche areas (electric vehicles, cybersecurity, etc.).
While this bill has less new spending that some of the initial proposals put in place, it is still significant when compared with baseline infrastructure spending. The current proposal targets spending most of the $1 trillion in the first five years. Infrastructure spending attempts to build a basis for future growth and can create multiplier effects across the economy as those connected to the direct beneficiaries of the bill experience residual boosts. For example, an investment in broadband can add to worker efficiency and student education by creating faster internet for more individuals. The prospective drag on these growth effects is the negative impact of the increased taxes to pay for it and the potential for the creation of inflationary pressures in the economy. What is ITC doing? We have decreased portfolios sensitivity to rising rates and added real assets which can provide a cushion for these effects.
Traditional infrastructure will receive the majority of the funds with the largest area of spending being roads, bridges, and major projects ($110 billion). We can expect a positive effect on companies that would benefit from these inflows. However, Mr. Market is wise and has already priced in the likelihood this may be signed into law. We can benefit the most by diversifying across companies and sectors/sub-sectors that may benefit instead of swinging for a home run in particular names. Some of our current funds and ETFs that benefit from this rising tide are iShares US Energy, T Rowe Price New Horizons, T Rowe Price Intl Discovery and Northern Multimanager Global Listed Infrastructure. In larger portfolios where we can include individual stocks we own: General Dynamics, Norfolk Southern, American Tower and NextEra Energy as well as several technology companies like Microsoft and Google that will benefit in various ways.
An investment in technology leads us to the third area where the bill can impact portfolios, technology infrastructure; including broadband internet access, electric vehicles, and cybersecurity. In this area of spending in particular, we want to focus on the long run and diversification across many potential beneficiaries of the bill. One hot tech company can rise and fall based purely on market sentiment, but by owning a broad swath of names, we can mitigate this risk while benefiting from newer industries. Several of the funds listed above may benefit from this spending with the addition of Blackrock Technology Opportunities. This fund owns many big tech names but also focuses on mid-sized and smaller tech firms that could benefit more from infrastructure investment.
The name of the game is managing risk while benefiting from evolving market trends. We aim to make small changes around the edges of a portfolio to benefit from events, such as an infrastructure bill. However, the best long-term strategy is to embrace Modern Portfolio Theory, diversify, and focus on the long run. If you have any questions about the bill or specifics to your portfolio, don’t hesitate to contact your relationship manager.
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