Morningstar - Q3 2021 - 50

Strategies
Who Benefits From Infrastructure Plan?
Upside will be found among
nontraditional plays.
Research
57
Pros and Cons of Donor-Advised Funds
62 Do Low-Volatility Funds Deliver?
Quant U
64 A Ruler for Risk
Best Ideas
69 Manager: Bold Moves
70 Passive: A Smoother Ride
71
Equity: Nice Comeback
RESEARCH
David Sekera
This past spring, the White House proposed the
American Jobs Plan, a more than $2 trillion
infrastructure program. The plan would provide a
boost to a wide range of sectors, reinvigorating
both traditional infrastructure as well as
supporting new nontraditional infrastructure
programs. However, the plan's proposed increases
in the corporate tax rate would be a headwind
for U.S. markets.
As with any major initiative out of Washington,
D.C., this plan, along with other priorities
from the Biden administration, has been in intense
negotiations between the Democratic and
Republican parties. In addition, in a surprise move,
the Senate parliamentarian issued guidance that
essentially limits the Democrats to only one more
reconciliation bill this year, thus changing the
paths on how these initiatives will come to fruition.
While there are multiple routes the Democrats
could take, we expect they will lead to the same
place-the passage of most of the initiatives, just
at different times and in different manners.
With the U.S. market near its highs-and slightly
overvalued, in our view-many of the companies
that might be able to capitalize on the infrastructure
plan are either already fairly valued or
overvalued. Indeed, stock prices on the obvious
candidates have already run up. We think the most
opportunity can be found in sectors that are
not traditionally considered infrastructure plays.
Different Paths, but Same Endgame
The rule in Washington is that you should always
expect the unexpected, and this plan certainly
50
Morningstar Q3 2021
has been no exception. We had expected
that the Democrats would look to pass two budget
reconciliations this year-first, to address the
American Jobs Plan, and second, to address the
American Families Plan, which would expand
access to childcare and education. In reconciliation,
they can be passed in the divided Senate
with a simple majority and do not need to attract
Republican votes to overcome the filibuster.
However, we did not foresee that the Senate
parliamentarian would essentially limit the
Democrats to only one more reconciliation bill this
year. So, as of now, we see two potential
paths for Democrats to pass both the American
Jobs Plan and the American Families Plan.
The first path would be for Senate Democrats to
reach a bipartisan agreement with enough
Republicans to be able to bypass a filibuster and
bring a new bill to the floor to pass a substantial
amount of the American Jobs Plan. It would focus
on traditional infrastructure to be able to garner
bipartisan support. Then, the Democrats could use
the budget reconciliation process later this
year to address the nontraditional infrastructure
spending not included in the bill along with other
priorities, such as the American Families Plan.
If Democrats are unable to reach a bipartisan
agreement, then the second path would be
for them to lump both the Jobs Plan and Families
Plan together into a much larger reconciliation
and push it all through on a purely partisan basis.
So, Where Are We Today?
There has been a small working group of Democrats
and Republicans who have tentatively reached
an agreement on $1.2 trillion of spending, most of
which goes toward traditional infrastructure,
https://www.morningstar.com/authors/1514/david-sekera
Morningstar - Q3 2021

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