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Time to Buy Global Utility & Infrastructure ETFs?

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The recent shockwaves emanating from allegations against U.S. President Trump related to his Russia links, other geopolitical tensions and a likely Fed rate hike in June may unnerve investors. If these aren’t enough, apparent overvaluation concerns in global stock thanks to a pretty extended bull market can derail the market momentum in the coming days (read: Best ETF Strategies for Trump Uncertainty).

The yield on the 10-year U.S. Treasury was at 2.25% on May 26, 2017. PowerShares DB US Dollar Bullish ETF UUP gained over 0.2% on May 26.

Meanwhile, Trump’s administration presented its first budget wherein it intends to chop about $3.6 trillion of government spending over 10 years. Since the proposal in its current form has lesser chances of being approved by lawmakers (as per the source), we might see the Trump rally wavering in the near term.

On the other hand, several economies around the world are looking up with the most developed ones gaining momentum. Be it Euro zone, Japan or some emerging markets, equities are in the pink. Massive policy easing in those regions against the monetary policy stance of the U.S. will likely keep foreign bond yields and the currency subdued in the days to come (read: Japan ETFs: Compelling Plays in 2017?).

Investors should note that though down from its April height of 216 bps, the spread between U.S. and German 10-year government bond yields now hovers over 180 basis points. Given this, many investors may want to have a look at those global sector ETFs that normally benefit from lower yields and higher economic activity.  

Below we highlight two such sectors -- utility and infrastructure – and their ETFs for investors looking for both solid current income and capital gains. These funds hit a 52-week high lately.

Utilities and infrastructure related stocks are interest-rate sensitive and recession-resistant in nature. With interest rates being low in most developed nations, the appeal of these stocks has increased as these offer steady and strong yields (see all Utilities/Infrastructure ETFs here).


SPDR S&P International Utilities Sector ETF (IPU)

The $27.58-million fund has a double-digit weight in the U.K. (18.06%), Japan (12.72%) and Spain (12.64%). The fund charges 40 bps in fees. The fund yields around 3.96% annually.

iShares Global Utilities ETF (JXI - Free Report)

The $143-million fund focuses mainly on the U.S. market (57.34%) followed by the U.K. (8.8%) and 5.9%. It charges 47 bps in fees and yields 4.26% annually.


 DJ Brookfield Global Infrastructure ETF (TOLZ)

The $42.0-million fund has about 50% exposure in the U.S. while Canada also has double-digit exposure. The fund is heavy on Oil & Gas Storage & Transportation (30.97%). The fund charges 46 bps in fees and yields about 2.51% annually.

FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA)

This $901-million ETF is also heavy on the U.S. (38.4%) followed by Canada (13.3%), and Japan (11.16%). NFRA charges 47 bps in fees and yields about 2.71% annually.

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