Bill Gross on “Build America Bonds”
During a CNBC Power Lunch interview, Bill Gross shared his views on the Donald Trump victory along with his skepticism regarding some of his policies, which we discussed in the earlier parts of this series.
Given the much-talked-about policies around an increase in infrastructure spending in the US, we could see a lot of infrastructure bond issues floating in the market. When asked, Bill Gross admitted he would willingly invest in such “Build America Bonds,” especially given the level of Treasury (TLT) yields. With the Fed’s ZIRP[zero interest rate policy] policy, interest rates in the US have been very low for a quite a while now. These infrastructure bonds are likely to quote a decent rate of return and may not carry as much risk relative to the bond market (BND) (AGG) in general.
Our perspective is in line with Mario Gabelli and Jeffrey Gundlach in that we think that industrial sector companies engaged in infrastructure, buildings materials, and equipment rentals will likely gain as a result of the infrastructure building spree we could see in the US. The Industrial Select Sector SPDR Fund (XLI) could rise with this tide. The ETF is up 15.4% YTD, 7.2% over the past month, and 2.5% over the past five days as of November 16.
The PowerShares Dynamic Building & Construction Portfolio ETF (PKB) is focused on building and construction related stocks, while the Materials Select Sector SPDR ETF (XLB) provides exposure to the US materials sector. These ETFs should also gain amid the expected rise in infrastructure spending in the US.