Enter Rebuilding America
Unwrapping our latest thematic investing model
As regular readers of Thematic Signals+ are aware, we at Tematica are focused on the development of investment themes and corresponding indices and models. From time to time we introduce new ones, and as the June quarter-end approaches, we have a few new things to unveil. Over the next few days, we will be introducing two new thematic investment models - Rebuilding America and Aging of the Population - and a new thematic index as well.
Ahead of their debut, we will be sharing some background information on the respective strategies. Today we have a quick primer on the “why” behind the Rebuilding America model and the one for Aging of the Population to follow tomorrow. Next week we’ll take the wraps off that new index as well.
Rebuilding America
After decades of decline and report after report from the American Society of Civil Engineers (ASCE) that warned over the decaying state of U.S. infrastructure, the most recent of which gave it a grade of “C-” we are on the cusp of seeing the Biden Infrastructure Law start to address. Plain and simple, we see that as a large pain point being addressed and it’s one that if not addressed is expected to cost the U.S. $10 trillion in GDP and $2.4 trillion in exports according to ASCE calculations.
While the Biden law provides $1.2 trillion over the next five years, ASCE estimates the investment gap is more like $2.59 trillion over the coming 10 years.1
So far in 2022, we’ve started to see a pick up in nonresidential construction. During the first four months of 2022, total nonresidential construction rose
3.7% YoY in January
6.2% YoY in February
5.6% YoY in March
6.6% YoY in April
Data points are starting to coalesce for a steady rollout of Biden Infrastructure projects, with bridges and transportation projects ahead of road projects at least for now. Six months after the signing of Biden's infrastructure package, reports indicate there are 4,300 projects underway with more than $110 billion in funding announced. Of that announced funding, $52.5 billion is for federal highway funding this fiscal year and $20.5 billion for public transit. There is another $27 billion over five years for bridges, as well as money for safety, rural highways, airports, ports, drought resilience, and other programs.
Alongside the initial flow of funds, the American Institute of Architects (AIA) Architecture Billings Index, an economic indicator for nonresidential construction activity, with a lead time of approximately 9–12 months, revealed increasing demand for design services during the first four months of 2022. With the April data, scores for both new project inquiries and design contracts remained strong, at 62.3 and 55.4, respectively. Any score above 50 indicates an increase in billings. As we march toward the close of the June quarter, this morning brought the May reading for the index, which showed a sequential increases in new project inquiries and design contracts figures, expanding to 63.9 and 56.9, respectively.
As the infrastructure spending spigot opens further and funds begin to flow, the constituents in the Tematica Rebuilding America model are poised to benefit from rising demand for equipment, materials, and related services. Each of the 8 companies in this model has their respective businesses focused not only on construction but they derive the bulk of their revenue from the U.S. market. The current basket offers an aggregate dividend per share of $7.75 across those 8 companies.
“2021 Report Card for America’s Infrastructure” available at https://infrastructurereportcard.org/wp-content/uploads/2020/12/National_IRC_2021-report.pdf