Infrastructure ETFs to watch in wake of Senate passing bipartisan infrastructure bill

Cinthia Murphy, Managing Editor of ETF.com, joins Yahoo Finance to discuss the outlook on infrastructure ETFs, ETF opportunities for investors, and outlook on the broader ETF space.

Video transcript

KRISTIN MYERS: Let's go now to our ETF report brought to you by Invesco QQQ. We're joined by Cinthia Murphy, managing editor of ETF.com.

Cinthia, so we had the passage of that Senate-- or I shouldn't say the passage, but at least it passed the Senate, that infrastructure bill, that bipartisan infrastructure package in the Senate. So if folks out there do want some exposure to infrastructure, I have two questions for you here.

One, because we have heard some folks say that this has been priced in already, some of that movement that's happening on the Hill. So is right now a good time to buy into infrastructure? And if so, what are you looking at?

CINTHIA MURPHY: Hi, Kristin. That is a great question. Coming into this bill vote, we were all concerned about that. How much is already priced into the market? As you know, in markets, we like to say that we buy the rumor, we sell the news. So there was a lot of bet energy going into this yesterday.

Once the bill was passed, at least in this first phase, what we saw happen actually, is that infrastructure ETFs in general-- there's several of them to choose from. But generally speaking, they've had a strong day of performance yesterday. They have another strong day of performance today.

So so far, so good in infrastructure ETFs. We are not seeing the selling of the news yet. But a lot of it goes into this. These infrastructure companies, a lot of them are materials, industrials, some of these cyclical names that have benefited this year as part of just the economic reopening story, as part of the moving to value names versus growth.

And just as the overall support of the stock market by the Fed, which could also now be on the line if we really do start seeing tapering this fall, which is the latest conversation this week. So infrastructure ETFs and the companies in these portfolios would not be immune to any kind of stock pullback if we see one following any kind of Fed action.

But so far, so good. For now, they're doing well. They've done really, really well this year. They've done really well, really since November after Biden won the election and really strongly on this narrative of big money going into infrastructure.

So if you haven't been in this play, you've missed out already on 45%, 50% gains since November. And how much more room through the upside is anybody's guess. But so far, they've been performing really well this year.

BRIAN CHEUNG: Cinthia, so if the boat has already left the terminal then, are there any other place for arbitrage beyond maybe the headline ETFs that literally have the word infrastructure in their names? Can you look at, let's say, for example, a transports or an EV ETF for opportunity? Or it's the same story over there?

CINTHIA MURPHY: Yeah. If you go clean energy, for example, 2020 was a blockbuster year for these funds. I mean, we're talking 100%, 200% in gains. Coming into 2021, they're all in the red. So funds like ICLN or TEN, the solar energy one, they are massively in the red this year because they've been correcting dramatically because they ran so much last year.

So it could be that now they find some kind of footing and are kind of a buying opportunity. But it really comes down to conviction. I mean, an infrastructure bill passing is step one. Now the actual investment and the companies that are going to reap the benefit of this investment. This is a multi-year project. So there are companies that are going to, over time, benefit from this.

So whether you're really bullish on the broad theme, an infrastructure ETF will capture that. If you're really bullish on, say, electric vehicles or the power grid improvements on the electrics, then you have more narrow ways to access that through ETFs, so funds like LIT, for example, which is the lithium battery ETF. It's doing phenomenally well for everybody who's a big believer in the future of electric vehicles which need these batteries.

You have GRID, which is a fund about the electric grid improvement and a move to the latest technology and ESG stuff. So there's different ways where you can be very more narrowly focused. But it's just a way of approaching theme investing in general. So ETFs allow you that opportunity to just focus on the part of the infrastructure story that you're really bullish about if you want.

BRIAN CHEUNG: Cinthia, quickly, I want to ask about the broad ETF space. Inflows have been remarkable this year, and maybe following the broader trend of active money going into passive. But I want to credit Eric Valciunas over at Bloomberg for pointing this out. But JPMorgan's going to be converting a number of their mutual funds into transparent ETFs. Do you see that being a trend, that a lot of these active funds could actually turn into ETFs, which provide even more opportunity for passive opportunities?

CINTHIA MURPHY: As an industry, we've been waiting to see that kind of action happen. And last year with the passage of the ETF Rule, we saw a lot of new players come into the ETF space and a lot of asset managers just try and come and launch their first ETF because clients, investors are demanding access to ETFs. They're a lower-cost vehicle. They're a transparent vehicle. They're a tradable vehicle, unlike mutual funds.

Now, I think what really changed the conversation, we're starting to see things like a $10 billion move-- commitment, I should say, from JPMorgan to transfer, convert mutual funds to ETFs. It really was one-dimensional. DFA did it last year. And it was the first time anybody did a mutual fund to ETF conversion. So everybody was watching.

And it worked out really well. It was a very successful transition. It was really well-received. So I think that just opened the floodgates for us to start seeing all these other asset managers consider that as a pathway to ETFs. And JPMorgan's move suggests that we might actually be just at the beginning of this kind of trend taking shape here.

KRISTIN MYERS: All right, we'll leave that there. Cinthia Murphy, managing editor of ETF.com, thank you so much for joining us today.