When Congress passed the Infrastructure Investment and Jobs Act of 2021 to fix and replace roads, bridges and tunnels, a broader definition of “infrastructure” was already on the congressional horizon.

Though the act defined the category more broadly than ever by including funding for increased broadband access and some environmental goals, a more sweeping definition was already developing in the nascent Inflation Reduction Act and CHIPS and Science Act.

Passed by Congress last summer, these two acts bring the definition fully into the 21^st century by targeting widely expanded environmental goals and technology.

Belated Impacts
For many affected companies, the market effects of the legislation thus far have been muted or, as it will probably turn out, they are belated. Though many traditional infrastructure names did well in 2020-2021 in anticipation of the infrastructure act’s passage, this was in a still-rising market.

Then came the bear market this year. But the bear is naturally having the effect of sowing discounts in fields that will be fertilized by the legislative packages over the long term.

Even without the bear market, a slow impact would hardly be surprising. After all, a lot of things, both public and private, must happen before federal money starts to flow. And even in brisk markets, impacts are often delayed by calibration to the short attention spans of traders focused on today’s headlines and speculation on tomorrow’s news, not gradual sector growth.

“Clean” Is The Byword
The overriding priority of the bills passed last summer is to stimulate solutions to problems in energy, transportation and industry in non-polluting ways. Thus, the key word in this morass of legislative language is “clean”—for clean water, clean air and, toward environmental, commercial, industrial and consumer goals, clean energy.

For generalist advisors who don’t want to spend a lot of research time down in the weeds, it’s generally a good idea to focus primarily on funds, as predicting which green companies (especially the younger ones) will emerge victorious from the current scrum can otherwise be a crapshoot. To complicate things further, not all green companies don the ESG label, and some that do may not actually be so green.

Energy Priority
The bill’s clean energy focus includes:
• Energy production. The legislation provides tax credits for energy generation from wind, solar, geothermal, bioenergy and hydropower; for energy storage and clean hydrogen; and to modernize utilities’ and states’ infrastructures. Tax credits make the cost of green hydrogen competitive with the more widely used blue hydrogen created from natural gas. Companies likely to benefit can be found in the Invesco Solar ETF (TAN), Invesco MSCI Sustainable Future ETF (ERTH) and iShares Global Clean Energy ETF (ICLN). Noteworthy names in this space are Plug Power (PLUG) and First Solar (FSLR). The latter is especially well positioned to benefit from substantial tax credits for solar panels manufactured in the U.S.

• Adoption and development of electric vehicles. The legislation includes consumer tax credits from $4,000 to $7,500 for consumers buying EVs, and provides manufacturer tax credits for producing them and building new manufacturing facilities. It also offers up to $20 billion in loans and $2 billion in grants for new and existing EV facilities, as well as $3 billion for the procurement of zero-emission vehicles for public transit and the federal fleets. Funds that stand to benefit include the iShares Self-Driving EV and Tech ETF (IDRV) and Global X Autonomous & Electric Vehicles ETF (DRIV), Global X Lithium & Battery Tech ETF (LIT) and Amplify Lithium & Battery Technology ETF (BATT).

• Adoption of enabling technologies. The legislation provides substantial tax credits, $9 billion in rebates and a $1 billion grant program to fund residential electrification and energy-efficient technologies, including heat pumps, rooftop solar, electric HVAC, water heaters and home appliances. Among the target areas are construction, food/water supplies and waste reduction—some of the themes of the JPMorgan Climate Change Solutions ETF (TEMP).

Water, Tech, Road/Bridges
Collectively, the three bills also provide stimulus for these goals:
• Cleaning up water supplies, a theme of the Invesco Water Resources ETF (PHO), First Trust Water ETF First Trust Water ETF (FIW), iShares U.S. Infrastructure ETF (IFRA) and Evoqua Water Technologies Corp (AQUA), a water and wastewater treatment systems and technology company that also provides emergency water supply solutions.

• Expanding broadband access and 5G. Beneficiaries include T-Mobile (TMUS), Qualcomm (QCOM) and chipmakers that sell 5G network gear, including Marvell (MRVL), Broadcom (AVGO), Intel (INTC), Texas Instruments (TXN). Also likely benefiting will be cell tower REITs including American Tower (AMT) and Crown Castle (CCI), which benefit from small antennas required for 5G, sited in in urban areas (5G’s short relay ranges require more towers than 4G). Other beneficiaries of the legislation  would include Microsoft (MSFT), Cisco (CSCO) and those in the iShares Cybersecurity and Tech ETF (IHAK), which owns market leader CrowdStrike (CRWD).

• Increasing the global competitiveness of the American semiconductor industry. The CHIPS act is to apply about $53 billion to, among other things, “reshoring," or moving to American soil, chip plants owned abroad by domestic companies. This should help the VanEck Semiconductor ETF (SMH) and, specifically, KLA (KLAC) and Applied Materials (AMAT), which build equipment for chip manufacturing. Despite the high global demand for semiconductors, their ubiquity in electrical consumer products and their good earnings, many companies in this industry are nonetheless battered by the bear market. Much of this damage is from being tarred with the broad Nasdaq brush, dipped in the negative paint of upstart firms with high share prices and no earnings. Yet before and now, there are some solid companies in this category—examples of what I call tech at a reasonable price (TARP). The CHIPS act is just another reason to own the best of these companies—especially at current prices.

• Energy research. The CHIPS act includes $67 billion for the Department of Energy, including a $50 billion authorization for the DOE’s Office of Science to enable cutting-edge research and development in clean energy to fight the climate crisis and foster projects for advanced computing and clean manufacturing. It also will fund the DOE’s national laboratories to further energy research conducted directly by the government and by universities and contractors. Leasing space to the government and contractors for this purpose are two REITs: Alexandria Real Estate Equities (ARE) and Easterly Government Properties (DEA).

• Traditional infrastructure: highways, bridges, tunnels, water ports, airports and utilities. Many suppliers, manufacturers and service firms in Global X U.S. Infrastructure Development ETF (PAVE) have already benefited from the infrastructure act of 2021, in some cases early on, from widespread anticipation than it would pass. The bear has of course consumed gains of many of these stocks. Deere, Trane, CSX, Norfolk Southern, Steel Dynamics and Trimble remain down for the year. Yet Nucor, a specialty steel company whose shares were trading at $140 in mid-September, is up from $110 when the infrastructure legislation passed in 2021.

Targeted investment in funds and companies that stand to benefit from the legislation is a long play that can heighten gains for advisors who select stocks based not just on the coming stimulus, but also on existing merits.

Dave Sheaff Gilreath is a founding principal and CIO of Innovative Portfolios, an institutional money management firm, and of Sheaff Brock Investment Advisors. Based in Indianapolis, the firms manage about $1.4 billion.