Portfolio (and mental) positioning for the $1.2 trillion infrastructure bill

Silvertree - Tuesday, Nov 16, 2021

Regardless of what side of the aisle you are on, this bill affects EVERYONE financially and mentally, and advisors should prepare client money and minds for this historic (albeit arguably a non-transformational) event.

$1.2 trillion is going to flow over the next 10 years, so don’t overthink it. Sure some companies are going to see substantial growth, but not all. Individual stock positions such as John Deere, Caterpillar, Nucor have seen a jump in price recently but that is hardly indicative of substantial future growth in those individual companies. Instead of trying to get lucky by picking an individual winner, focus efforts on portfolio construction with sound long term themes, the infrastructure bill driving disruptive innovation being one of those themes.
The key here is simply don’t miss out on the broad picture by getting lost in the weeds trying to hit on the roulette wheel of stocks. Rather, utilize a core-satellite approach and bolt on these long-term thematic positions to take advantage over longer terms using efficient ETFs. You can read more about this style of asset allocation here

A lot of investors are being very cautious right now saying that the market is overvalued and stretched beyond comprehension, and volatility will create massive turbulence in asset prices. While those statements make great headlines, I do not share those same concerns, and neither should your clients.
During a recent interview I hosted, Mark DiOrio, CFA®, Chief Investment Officer of $8.5 billion RIA Brookstone Capital Management stated, “I think the broader theme is that the economy and stocks continue to hum along and earnings growth is very strong…there’s a lot of beneficiaries at play here…” You can see the full interview here
Mark is correct, trying to pinpoint one or two companies as a primary benefactor requires the investor to get lucky twice; when they buy and when they sell. Taking a broader approach increases the probability of a desirable outcome. When picking which themes to lean towards with our satellite positions, we have been leaning towards those categories we feel will most greatly benefit over the next 10 years of this spending bill. Remember that to benefit from the spending bill does not directly mean spending in that specific industry, rather who benefits from that spending?
For example, broadband and connectivity. How did companies address the pandemic and what are they doing in the new work environment, and who are going to be the key players as we move forward? Another example: there is $65 billion going to modernize the electrical grid. The EV category stands to benefit considerably from this, and while we are fairly certain gasoline cars will still be on the road in 10 years, the number of EV vehicles anticipated to be on the road a decade from now requires this improvement to the power grid. EV manufacturer Rivian has a larger market capitalization than Ford but has yet to deliver a significant number of vehicles. That’s amazing! The EV market is going to be a multi-decade theme that will continue to play out for the foreseeable future.
With that said, there are more traditional companies that will benefit from this shift because you simply cannot flip a switch and change overnight to all EVs. This has left a lot of your traditional household companies undervalued, opening up opportunity to buy in the places where nobody is really looking because of flashy headlines on the individual disruptive companies, like Rivian.
Humans suffer from many debilitating traits when it comes to investing. The most influential are the emotions of fear and greed. However, when it comes to clients, they typically don’t appreciate it when their advisor says “Hey, stop being so greedy!” or “knock it off scaredy cat, does a little volatility make you nervous?” I know you would never say those words to your clients, but when addressing fear and greed, that is often what the client hears.
Instead, I use these terms to help clients overcome their emotional bias when examining their investments. Two major hurdles clients must overcome are “recency bias” (fear) and “frame of reference risk” (greed). Having an open dialogue with the client regarding those two emotional drivers in this way sets the stage for how you will position their portfolio, and how the client sees you as a service provider.
If they have a high degree of “frame of reference” risk or “recency bias” then your satellite allocation would be substantially lower than a client who understands that to increase the potential for greater returns over time the investments will not follow along with the S&P (frame of reference). By approaching their investment feelings in this way, you are far more likely to produce the long term outcome that the desire within their comfort zone.
I have found mass communication regarding investment performance to be helpful because it addresses the concerns for the clients who may feel embarrassed or uncomfortable about performance worries. It is important for clients to hear from their advisor that in some years they will have outsized returns due to allocations to these long-term themes and periods of underperformance are simply digestion of those gains and are not a cause for concern.

By: Jason Glisczynski, CFP® – Chief Executive Officer of Silvertree Retirement Planning in Stevens Point Wisconsin. Silvertree works with business owners and executives to achieve a work optional lifestyle in 10 years or less, often before they turn age 65. Silvertree advises clients on over $100 million in assets both in person and virtually.
Investment Advisory Services offered through Brookstone Capital Management (BCM) LLC, a Registered Investment Advisor. Silvertree, LLC and BCM are separate companies. The opinions expressed herein are solely of the author and do not represent tax, legal, or investment advice.