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Mending the yellow brick road

By: Catherine Yoshimoto, Senior Index Product Manager

"Follow the yellow brick road” – perhaps the most famous advice ever uttered in movie history, in one of the best loved films ever made. There is a widely held belief that the story of Dorothy Gale and the Wizard of Oz is an allegory of late 19th century America—a period that many think has striking similarities to America today. But whether or not you imagine that the 2016 presidential election equates to the cyclone in the film, the consistent infrastructure theme is surely unmistakable. President Trump has, after all, vowed to invest more in America’s basic infrastructure including roads (although not necessarily with yellow bricks).

Such promises can affect relevant market segments. Even before the November election, interest in infrastructure was gaining ground. In a survey last year, Preqin found that half of institutional investors questioned had a positive outlook for infrastructure investment and indicated their intention to increase long-term allocations to the segment in June 2016.[1] The election of a US president who plans to increase infrastructure spending may influence this interest even more.

For market participants looking to track this segment, FTSE Russell offers an index series with a focus on infrastructure and infrastructure-related companies. Using the FTSE Global Equity Index Series as the starting universe, the FTSE Infrastructure Index Series selects the relevant companies based on FTSE’s definition of infrastructure. There are several types of indexes in this series, each with a slightly different approach to the segment.

Purists may favor the selection criteria applied in the FTSE Core Infrastructure Index Series, which focuses on companies that generate 65% or more of their revenue from owning, managing or operating structures or networks in the energy, telecommunications and transportation sectors. The FTSE Core Infrastructure 50/50 Index Series uses the same universe as the standard Core index series but with a variant weighting methodology that caps exposures to certain infrastructure subsectors. Those that prefer a broader definition of infrastructure may prefer the FTSE Infrastructure Opportunities Index Series, which additionally includes infrastructure-related segments of materials & engineering, conveyance services and communications services.

As we can see above, relative to their relevant, broader based reference indexes (the FTSE Global All Cap Index and the FTSE Developed Index) the Core Infrastructure and Core Infrastructure 50/50 indexes recorded higher returns for 2016.

The increased interest in infrastructure and infrastructure-related segments of the market had already started prior to the election of President Trump, and his vows to increase infrastructure spending may result in further interest. If infrastructure spending does increase, of course, roads will be mended and jobs no doubt created, and maybe more Americans will decide, like Dorothy, that “there’s no place like home.”

Get a more detailed look at the FTSE Infrastructure Index Series.


[1] Preqin Investor Outlook: Alternative Assets H2 2016.


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