Digging Deeper Into Infrastructure (Part 2)

In Part 1, I looked at four infrastructure funds that held physical structures like utilities, tolls, and storage facilities that generate income, as well as companies that build infrastructure. These funds focused mostly on developed markets in North America, Europe, and Japan.

These funds only partially met my two criteria: 1) their holdings must cover the range of industries that participate in infrastructure, and 2) they must participate in both the US and China build-outs, with other global markets as a bonus.

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Now I’ll look at four new funds with a different focus. Three of them were launched in the fall of 2008. All are small in total assets since they came at a time when cash was flowing out of such funds. But their portfolios are better suited than previous funds to take advantage of the infrastructure climate we find today. All tend to avoid utilities, and three of them have significant holdings in emerging markets, the BRIC economies, and China in particular.

• PowerShares Emerging Markets Infrastructure (PXR) tracks companies that are specifically active in building infrastructure in the emerging markets. Major holdings are in China, SE Asia, US and developing nations.

• First Trust ISE Global Engineering and Construction (FLM), is balanced more toward companies from developed markets of Europe, North America and Japan, although they participate in projects globally.

• Markman Global Build-Out (MGBOX) has a strong list of US and European companies, and a P/E ratio of 7, the lowest in the group. Its holdings are predominantly US, with some Europe and Asia.

There is little performance history for these three funds. The two ETFs are based on indexes that have been back-tested. The Markman fund is actively managed, so it will take some time to build a performance history.

Another ETF has been mentioned as a proxy for strictly US infrastructure - the PowerShares Dynamic Building and Construction Portfolio (PKB). But beware - it holds 22% consumer discretionary. The top ten holdings include Home Depot (HD) and Lowe's (LOW), as well as Caterpillar (CAT), Fluor (FLR) and Jacobs Engineering (JEC). It is well worth considering for its US focus.

These last four funds as a group have rallied about 25% since the November lows. Compare to the first four funds with utility holdings that are up closer to 10% as a group.

Here we can see how emerging and domestic infrastructure performed relative to EEM and S&P500 since November lows:

These four newer funds - PXR, FLM, MGBOX and PKB - should benefit most from the coming infrastructure spending. For US infrastructure, I like IGF and MGBOX. For China and the emerging markets, the standouts are PXR and FLM. No single fund covers both US and China adequately. For now, the best approach may be to use two funds to cover the build-outs in US and China, and get a splash of the other developed and emerging markets on the side.

Disclosure: No positions

Comments

[Moon Kil Woong:]

Wow some of these asset bases are under $10 million. I wouldn't touch them with a 10 foot pole. Why not just buy Caterpillar and a couple other equipment stocks. Do you really want to be exposed to the housing market? The Obama construction boom is liable to be infrastructure not any traditional buildings and won't be happening in Europe (MGBOX) and China (PXR).

Personally I think government spending bets are good profit makers because they overpay and fill all their products with pork. However, my conscience aches at the suffering of the general public over such wastefulness. I guess Alaska will get their bridge to nowhere eventually, thanks to an economy going nowhere.

Jan 12 07:29 AM

[User 329158:]

Mgbox=Ponzi Scheme

Jan 18 07:00 PM