Top Infrastructure ETFs to Invest In

Understanding Infrastructure as an Investment

Institutional investors, such as pension funds, sovereign wealth funds, and endowments, often deviate from the traditional stock-and-bond portfolios that retail investors typically favor. These institutional players frequently allocate a significant portion of their portfolios to alternative investments and real assets. While real estate is a well-known example, infrastructure has emerged as another essential component in these diversified strategies.

Infrastructure is not officially categorized under the 11 Global Industry Classification Standard (GICS) sectors. However, it has gained increasing attention, especially in the United States, following the 2021 passage of the bipartisan Infrastructure Investment and Jobs Act (IIJA). This legislation authorized $1.2 trillion in federal spending on various infrastructure projects, including roads, bridges, passenger rail, broadband internet, airports, ports, and electrical grid modernization. As a result, investor interest in infrastructure-linked investments has surged.

What Exactly Is Infrastructure?

There is no single definition of infrastructure, but it is generally understood in two primary ways:

1. As an Asset Class: Infrastructure refers to investments that own essential physical systems or facilities providing critical services to society and the economy. Examples include power lines, pipelines, roads, railways, and water utilities. In recent years, the definition has expanded to include assets like cell towers and data centers, which are vital for modern communication and information flow.

2. As an Investment Characteristic: Infrastructure assets are often described by their ability to generate reliable, steady cash flows through tollbooth-like business models. These businesses operate in regulated environments or oligopolies, which limits competition and enhances pricing power. For instance, a pipeline that charges producers to transport oil or a private water utility that bills monthly for service exemplifies this model.

Taken together, infrastructure represents essential services backed by hard assets that deliver stable and predictable income, often through long-term contracts or regulated pricing models. These cash flows typically include built-in escalators to offset inflation, such as utility rate adjustments or inflation-indexed service agreements.

How to Invest in Infrastructure

Accessing infrastructure assets depends largely on the type of investor. Institutional investors often make direct investments in large-scale infrastructure projects, such as funding the expansion of an airport terminal or investing directly in a toll road concession via bonds or shares.

For retail investors, accessing infrastructure is more straightforward through publicly traded securities. Many infrastructure operators, such as Enbridge (ENB), Kinder Morgan (KMI), American Water Works (AWK), and Class I railroads like Union Pacific (UNP) and Canada Pacific Kansas City (CP), are listed on major stock exchanges.

However, building a diversified infrastructure portfolio from individual stocks can be overwhelming due to the wide range of sectors involved, including utilities, energy, industrials, and materials. To address this, asset managers have launched infrastructure indexes and exchange-traded funds (ETFs) that provide diversified exposure, competitive fees, and ease of trading.

Best Infrastructure ETFs

When selecting the best infrastructure ETFs, several factors were considered, including expense ratio, assets under management (AUM), and long-term viability.

Global X U.S. Infrastructure Development ETF (PAVE)

• Assets Under Management: $9.1 billion
• 5-Year Annualized Return: 22.9%
• Expense Ratio: 0.47%

This ETF tracks the Indxx U.S. Infrastructure Development Index and takes a hybrid approach, including traditional infrastructure names and manufacturers involved in construction. It emphasizes companies building and supplying infrastructure projects rather than those owning or operating the assets themselves. PAVE has outperformed most peers on a risk-adjusted basis, earning a five-star rating.

iShares Global Infrastructure ETF (IGF)

• Assets Under Management: $7.8 billion
• 5-Year Annualized Return: 11.8%
• Expense Ratio: 0.39%

IGF tracks the S&P Global Infrastructure Index, focusing on tollbooth-like companies such as utilities, industrials, and energy stocks. It offers a higher SEC yield, making it suitable for income-focused investors.

FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA)

• Assets Under Management: $2.8 billion
• 5-Year Annualized Return: 7.0%
• Expense Ratio: 0.47%

NFRA tracks the STOXX Global Broad Infrastructure Index, offering a broader and more diversified approach compared to other ETFs. It includes a mix of global infrastructure operators, providing greater sector and geographic diversity.

iShares U.S. Infrastructure ETF (IFRA)

• Assets Under Management: $2.9 billion
• 5-Year Annualized Total Return: 17.1%
• Expense Ratio: 0.30%

IFRA focuses on U.S.-based infrastructure, emphasizing owners of physical assets. It has a strong U.S. bias and is one of the most affordable options in the category, with a five-star Morningstar rating.

SPDR S&P Global Infrastructure ETF (GII)

• Assets Under Management: $575.9 million
• 5-Year Annualized Total Return: 12.4%
• Expense Ratio: 0.40%

GII tracks the same S&P Global Infrastructure Index as IGF but with a slightly lower expense ratio. It offers similar income profiles and is a viable option for long-term investors.