State Street SPDR ETFs: Pick & Mix, We All Want Better Infrastructure

State Street SPDR ETFs: Pick & Mix, We All Want Better Infrastructure

9 augustus 2024

Infrastructuur
Wereld Geopolitiek Infrastructuur (Pixabay, Sumanley xulx).jpg

According to State Street SPDR ETFs recently published Q3 Sector & Equity Compass, the Industrials remains a favourite because of structural growth drivers in defence and infrastructure building plus facilitating clean technologies and better productivity. The sector contains many companies and is a natural diversifier.

 

We All Want Better Infrastructure

Investment in infrastructure is a key driver of demand for the sector’s good and services. Public fiscal spending is a significant part of the spend. In the US, it is not known what a Trump 2.0 government would propose on the Inflation Reduction Act. However, the three bills passed under the Biden administration (including the Infrastructure Investment and Jobs Act and CHIPS Act) promised a total spend of $3T –$4T, a proportion of which could continue to work through the system.

This has already stimulated demand for building products, construction, machinery, and transport networks. Infrastructure is also very important to energy transition. Stocks within Industrials are amongst suppliers to retrofitting projects, renewable energy production facilities, and green infrastructure, such as EV charging. Siemens (which is seeing renewed interest in wind turbines) and Schneider Electric (supply chain experts) are good examples of companies that should benefit from the decarbonization policy.

Defence of the Realm

Spending on defence systems is expected to remain in the spotlight because of the continuing Russia/ Ukraine war and Trump’s rhetoric on the US campaign trail. US and European defence budgets continue to rise. Within NATO, there is a spending target that is equivalent to at least 2% of GDP; most members are still short of this target. The pressure to increase spending is likely to rise with the increasing global threat levels. Aerospace and defence providers constitute approximately 17% of Industrials by market capitalisation weight. The largest stock, General Electric, is now focused on aircraft engines following the successful demerger of its power and health care businesses.

Another AI Story

'In addition to defence and clean energy spending, the infrastructure sector is also well positioned to benefit from the facilitation of AI services,' says Rebecca Chesworth, Senior Equity Strategist at State Street SPDR ETFs.

'In the past we have featured necessary network equipment used within data centers and the components used in process improvements in manufacturing and optimised distribution for logistics. Many of the large engineering companies have innovative software businesses within their groups, which have benefitted their own group’s processes but are also offering technological services externally. One of the sector’s best performing stocks last quarter was Hitachi, which rose on the tie-up of its digital business, Lumada, with Microsoft’s AI products.'

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