FundGrade A+® Award-winner BMO Global Infrastructure Index ETF shines in long-term returns
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By Dave Paterson  | Thursday, September 07, 2017


 



With both Canada and the U.S. looking to dramatically increase infrastructure spending over the next decade, the medium- to long-term outlook for infrastructure is positive. A number of exchange-traded funds (ETFs) are available, but one of the best is the three-time FundGrade A+ Award-winning BMO Global Infrastructure Index ETF (TSX: ZGI).

This ETF invests in companies that are active in the development, ownership, lease, or management of infrastructure assets. It is a capitalization-weighted, passive portfolio that tracks the Dow Jones Brookfield Global Infrastructure North America Listed Index. The ETF is focused on North American holdings, with two-thirds invested in the U.S., 25% in Canada, 6% in the U.K., and the balance in Mexico and Brazil. From a sector perspective, utilities and energy make up more than 82% of the portfolio.

As of Sept. 5, top holdings included Enbridge Inc. (TSX: ENB), American Tower Corp. (NYSE: AMT), National Grid Plc (NYSE: NGG), TransCanada Corp. (TSX: TRP), and Crown Castle International REIT (NYSE: CCI).

Short-term performance of the fund has lagged its actively-managed peers, with the fund gaining 4.6% for the year ending July 31. In comparison, actively-managed infrastructure mutual funds are outperforming significantly. For example, the Renaissance Global Infrastructure Fund, the largest infrastructure mutual fund, is up 6.5% in the period, while other infrastructure funds range between 1.1% and 13.9%. In the longer term, however, the advantage shifts to the lower-cost ETF, which posted a five-year average annual compounded rate of return of 13.7%, compared with 11.1% for the Renaissance offering, with other funds’ returns ranging between 5.0% and 13.5% in the same period. Volatility has also been higher, but the excess return has more than compensated.

Valuations look stretched compared with the broader equity market, but very much in line with its actively managed peers. The price-earnings ratio was quoted at 28.9 at recent prices. The S&P/TSX Composite Index trades around 16 times earnings, while the MSCI World Index trades at 19.5 times. Factoring in modest growth projections, the valuation levels still appear to be stretched, but are on the lower end of the other infrastructure options.

Costs are reasonable, with an MER of 0.55%. In comparison, an actively managed infrastructure mutual fund will carry an MER of between 1.4% and 1.7% in a fee-based version. Clearly, the ETF offers a considerable cost savings.

Infrastructure is one of those specialized areas of the market where a high-quality, active manager should be able to outperform, because of potential inefficiencies. Unfortunately, to date, the mutual fund options have largely disappointed over the long-term, making this a solid choice for those looking for infrastructure exposure in their portfolios.

BMO Global Infrastructure Index ETF
Trading symbol:
TSX: ZGI
Fund company: BMO Asset Management Inc.
Fund type:
Infrastructure Equity
FundGrade Rating: B
FundGrade A+ Award: 2012, 2013, 2016
Style: Large Cap Blend
Risk level: Medium
RRSP/RRIF suitability: Good
Manager: BMO Asset Management Inc.
MER: 0.55%

Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

Notes and Disclaimer

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.

 

   
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