What is TOLZ? (Pros, Cons, and Strategies)

Investing in infrastructure can provide a stable and reliable income stream while also offering exposure to essential services and utilities. One investment vehicle that targets this sector is TOLZ, the ProShares DJ Brookfield Global Infrastructure ETF. In this blog post, we'll dive into what TOLZ is, examine its pros and cons, and explore potential strategies for incorporating it into your investment portfolio.

What is TOLZ?

TOLZ is an exchange-traded fund (ETF) that seeks to track the performance of the Dow Jones Brookfield Global Infrastructure Composite Index. This index includes companies that are primarily involved in the ownership and operation of infrastructure assets such as airports, toll roads, ports, railways, communications, and utilities.

Key Features of TOLZ

• Global Exposure: TOLZ provides investors with exposure to infrastructure companies from around the world, diversifying beyond just the U.S. market.
• Revenue from Infrastructure Assets: Companies included in the index must generate at least 70% of their revenue from infrastructure operations.
• Stable Dividends: Many infrastructure companies typically offer stable and often growing dividend payouts due to the essential nature of the services they provide.

TOLZ Composition

TOLZ includes a mix of companies from various infrastructure sectors, such as:

• Utilities (both traditional and renewable)
• Transportation (railroads, toll roads, airports)
• Communication infrastructure (cell towers, data centers)

These companies often have stable, long-term revenue streams as they provide necessary services that are in constant demand regardless of economic cycles.

Pros of TOLZ

Diversified Global Exposure

TOLZ offers diversified exposure by investing in infrastructure companies from multiple countries. This reduces regional risks and allows investors to benefit from growth opportunities in different parts of the world.

Stable Income Stream

Infrastructure assets typically produce stable and predictable cash flows. This translates into reliable dividend payouts for investors. For those seeking a consistent income stream, TOLZ can be a valuable addition to their investment portfolio.

Hedge Against Inflation

Infrastructure companies often have the ability to pass on cost increases to consumers in the form of higher prices, offering a hedge against inflation. This can protect your investment's purchasing power over time.

Low Correlation with Other Asset Classes

Infrastructure assets generally have a low correlation with traditional equities and bonds, enhancing portfolio diversification and potentially reducing overall risk.

Cons of TOLZ

Sensitivity to Interest Rates

Infrastructure companies often carry significant debt due to the capital-intensive nature of their operations. Rising interest rates can increase borrowing costs, potentially impacting profitability and dividend payouts.

Regulatory Risks

Many infrastructure sectors, such as utilities and transportation, are heavily regulated. Changes in regulations or government policies can adversely impact the performance of companies in this ETF.

Limited Capital Appreciation

While TOLZ provides a stable income stream, it may offer limited capital appreciation compared to growth-focused ETFs. Investors seeking significant capital gains might find the returns from infrastructure-focused ETFs less appealing.

TOLZ Investment Strategies

Given the relatively stable income and low volatility of TOLZ, it can be a valuable component of a diversified investment portfolio. Here are some strategies for investing in TOLZ:

Long-term Income Strategy

For investors focused on generating a stable income stream, TOLZ can be a key holding. By reinvesting dividends, investors can benefit from the compounding effect, potentially increasing their income over time.

Diversification Strategy

TOLZ can serve as a diversification tool within a broader investment portfolio. Since infrastructure assets have a low correlation with other asset classes, adding TOLZ can reduce overall portfolio risk and potentially enhance returns.

Inflation Protection Strategy

For investors worried about inflation eroding their investment returns, TOLZ offers a potential hedge. The ability of infrastructure companies to pass on cost increases to consumers makes it an attractive option for maintaining purchasing power.

Conclusion

TOLZ, the ProShares DJ Brookfield Global Infrastructure ETF, offers a unique investment opportunity for those seeking stable income and diversification. While it comes with some drawbacks, such as sensitivity to interest rates and regulatory risks, its benefits of stable, predictable dividends, global exposure, and inflation protection make it a worthy consideration for long-term, income-focused investors. Carefully consider your investment goals and risk tolerance before adding TOLZ to your portfolio.