Infrastructure Investment Theme

More and more, we have stepped away from a traditional monetary response paradigm into a fiscal response paradigm. With an almost zero interest rate, there is little federal reserve can do these days. Today, Biden announced a new $1.9T stimulus package, mainly divided among Federal and State Covid-19 support, direct household payment such as $1400 relief package, and public schools. $1.9T is not a small number. Again, every time we mentioned stimulus, we are now using trillions, not billions anymore. Without a doubt, this will raise spending across the board and a positive for the market, at the expense of the US dollar.

In his speech, Biden also talks about made and buy American products. This is the same continuation that started 4 years ago with Trump. US has started the de-globalization effort and wanted to ensure consumer spending power stays within the US. If this effort continues, it will drive other countries to copy the same behavior and thus reduce the overall global commerce exchange and flow. This will be hurt the global economy. In parallel, this could drive up more small and mid-cap stocks since they are less globally exposed.

To be a globally competitive economy, Biden needs to bring back manufacturing, which is very hard to do given how expensive it is to live in America compared to the rest of the world. But if this is the theme, to have the manufacturing economy back, we need Infrastructure building. Biden has traditionally emphasized rebuilding the US economy, we will need several things

  • Transportation infrastructure. We need roads and bridges to be optimized for manufacturing parts vs just the finished products. So the US engineering firms should do well. ETF like American Industrial Renaissance ETF (AIRR), American Industrial Renaissance ETF (IFRA) and Global X US Infrastructure Dev ETF (PAVE) could be interesting. Alternatively, it drives up material cost, so one can take a look at S&P Metals & Mining ETF (XME) or Global Metals & Mining Producers ETF (PICK). If you invest in a mutual fund, maybe you can consider Vanguard Industrials Index Fund (VINAX) and Fidelity® Select Industrials Portfolio Fund (FCYIX).
  • Logistics providers should do well, maybe iShares Transportation Average ETF (IYT) or Fidelity Select Transportation Portfolio Fund (FSRFX)
  • Clean energy is a good theme. Rather than continue to build a traditional oil-based economy, we can extend to cleantech such as solar, wind and water. This may potentially help ETFs such as Invesco Solar ETF (TAN), iShares Global Clean Energy ETF (ICLN), and material related play like Global X Lithium & Battery Tech ETF (LIT). Mutual fund investors have fewer choices, one could be Fidelity Select Environment and Alternative Energy Portfolio (FSLEX)
  • Robotics. As much as we want to bring the job back, the reality is that a lot of modern factories will be fully automated. This will drive all robotics-related investment, 3D printing, computer vision, warehouse robotics. so the technology sector will benefit significantly from the de-globalization trends if the product is produced in the US. We will do a complete blog on this in the future.

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