One of the hallmarks of emerging markets is poor infrastructure – either there’s none, or what’s existing needs serious upgrades. This room for improvement presents a long-term growth opportunity in ETFs that give exposure to this asset class.
Emerging markets account for more than 40% of the world’s population and around one-third of the world’s GDP, but most of these countries lack adequate infrastructure, according to iStockAnalyst.
And it’s not just emerging markets, either.
Developed countries with aging infrastructure are in desperate need of a face lift, as well. For instance, the U.S. Bureau of Transportation Statistics declared that one quarter of the more than 600,000 bridges in the United States are “structurally deficient” or “functionally obsolete.”
Governments have taken notice of this need, pumping billions into infrastructure projects to jump-start their economies during the recent financial downturn. This includes China’s massive $586 billion stimulus package last year. Analysts believe worldwide governmental spending on infrastructure may hit $2 trillion a year through 2015 and $35 trillion over the next 20 years.
A good way to get in on the trend is with ETFs that cover the sector. For instance, the iShares S&P Global Infrastructure Index (IGF), which tries to reflect the performance of the S&P Global Infrastructure Index, includes large global infrastructure companies involved in utilities, energy, transportation, oil & gas, airport services, highways and marine ports. The largest country allocations include the United States at 25% and Canada at 10%, with significant weightings in Western Europe, Australia and China. Sectors include utilities at 40%, industrials at 37% and energy at 21%.
Other infrastructure ETFs include:
- SPDR FTSE/Macquarie Global Infra 100 (GII)
- PowerShares Emerging Markets Infrastructure (PXR)
- iShares S&P Emerging Markets Infrastructure (EMIF)
- Emerging Global Shares INDXX China Infrastructure (CHXX)
- Emerging Global Shares INDXX Brazil Infrastructure (BRXX)
Max Chen contributed to this article.