Advisors are likely fielding plenty of macro-inspired questions this year, including inquiries about rising Treasury yields and inflation.
On a more tactical, granular level, one of the most discussed concepts, and one that clients are sure to be aware, is infrastructure. With White House targeting infrastructure spending of roughly $3 trillion, there are opportunities galore in this space.
Yes, advisors that have been in the game awhile know that U.S. infrastructure plans often tantalize at the start only to disappoint later on. That's the lay of the land when politicians are involved. Things sound great at the start and wind up being markedly different down the road. That could happen with th Biden plan.
Democrats' congressional majorities are slim, meaning $3 trillion is a big ask. The GOP is signaling $800 billion suits its tastes. Meet in the middle and there's still plenty of good reasons for advisors to discuss infrastructure with clients.
Firepower for Infrastructure Investing
If politicians can get of their own way (and investors'), they'll see the current environment is ideal for getting a significant infrastructure deal done.
“The trifecta of low rates, high unemployment, and an underperforming economy creates an entry point for aggressive government spending that can both create jobs in the near-term and accelerate economic growth over the long-term,” according to Global X research.
There's also the oft-mentioned sense of urgency. Infrastructure enhancement in the U.S. isn't just opportunity for investors. It should be a national priority, regardless of political leanings because, well, infrastructure in the world's largest economy is quite poor.
“Much of the nation’s transportation infrastructure was built in the 1930s and 1950s, but it has largely been underfunded and left to decay over decades of neglect,” notes Global X. “The American Society of Civil Engineers (ASCE) assigned U.S. infrastructure an overall letter grade of C-, highlighting that 43% of roads are in poor or mediocre condition, 7.5% of the nation’s bridges are structurally deficient, and 22 million Americans are drinking water from lead pipes.”
Think about that for a moment. The world's richest country has an infrastructure grade of C-. Advisors know if too many of their clients give them that grade, they'd be out of business. That's a source of embarrassment policymakers are aware of. How long they drag their heels on ameliorating the situation remains to be seen.
Fortunately for advisors and clients, infrastructure is a long-term investing concept and one supported by steady cash flows and income.
Focusing on the Basics
The Biden plan “seeks to address these infrastructure-related issues, earmarking billions for several broadly defined categories of infrastructure including transportation, buildings, energy, water, and digital,” according to Global X.
Working on the premise that the original proposal becomes watered down, it wouldn't be surprising to see the infrastructure bill that's ultimately considered be heavy on basic though necessary infrastructure projects while leaving large-scale renewable energy spending for another day.
Should that prove accurate, advisors should emphasize domestically focused strategies heavy on construction materials and industrial machinery makers. The read through is that advisors will want to steer clients toward strategies tilting toward industrial and materials stocks, giving clients not only above-average infrastructure exposure, but leverage to the roaring value factor, too.
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