Can It Be? A Toll Road ETF?

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 |  Includes: BARN, CMTOY, CX, DD, GXG, IYM
by: Roger Nusbaum

ETF provider Global X appears to be cranking up its golly-gee-whiz machine with an ETF filing that is right in the wheelhouse of a lot of my posts over the last couple of years.

The filing consists of the following:

  • Global X FTSE Toll Roads & Ports ETF
  • Global X FTSE Railroads ETF
  • Global X Farmland and Timberland ETF
  • Global X Cement ETF
  • Global X Advanced Materials ETF

My primary contact at the firm talked about the Cement and Toll Road & Ports as being my ideas, which I'm sure is part flattery ... but if it is true, then maybe they'll send me a bag of Quikrete if the cement fund lists (humor attempt).

Zooming out a little bit, the utility to these types of funds is in narrow-based portfolios where individual stocks might be difficult in terms of feeling comfortable with information available or liquidity or anything else. That might seem like an obvious statement, but what I mean is that it doesn't really take a colossal leap of faith to buy shares of DuPont (NYSE:DD) from the materials sector. At any given time, DD could be a bad hold or a good hold, but companies like this tend not to permanently impair capital. They are easy to access, are widely followed by analysts (you may choose not to heed their opinion, but they are sources of information) and you can find a lot of information yourself all over the web.

A stock like DD is going to look a lot like its corresponding sector ETF, in this case iShares Materials (NYSEARCA:IYM), the vast majority of the time making one a type of proxy for the other. The above is a little different with a group like cement stocks. Getting a lot of information about Cementos Argos (OTCPK:CMTOY) from Colombia would not be as easy. There is an English version of the company website, but it is unlikely that you could go to Yahoo Finance to find a bunch of analyst info, get a few pages of results with a search at WSJ, then hop over to Seeking Alpha to get a lot of color ... although you'd probably have luck looking at the numbers from BusinessWeek.

While I do not know yet what the index that will underly the cement fund looks like, there are cement companies in many emerging markets and, intending to be very obvious, a lot of the stuff that is needed to modernize these countries requires cement. Other than Cemex (NYSE:CX), which you may recall bought Rinker awhile ago, I am not aware of any emerging market cement companies on the NYSE or Nasdaq; these companies are usually not prominent in ETFs, although CMTOY does have a 5% weight in Global X Colombia (NYSEARCA:GXG). I think the group is a great way to get a little smaller with emerging market exposure, and to me there is a clear and obvious need for more cement.

As an example, pairing DuPont, a name we don't own, and its 3% yield with something thematic like the cement ETF would cover a lot of ground in the materials sector in terms of radically different exposures within the sector, a reasonable foreign and growthy footprint (probably), different volatility characteristics and a theme whose demand is easy to understand. Not a bad strategy at the sector level.

The other big fund for me in the listing is the Toll Roads & Ports ETF. Generally I think of these as most like utilities but with a little more volatility. I think these are a great way into a lot of countries, including China. They play into the aspiration of driving a car, which has a very steady demand behind it. With many of them, especially in China, the business also includes various services like rest stops, repair and hotels. The port aspect of this fund (not sure if it will include airports; at one point it was going to) captures the economy for better or for worse as cargo comes and goes.

The Railroad ETF would seem to be similar in that regard, although I would expect more cyclicality and volatility with less yield. Farmland and Timberland could be more of a play on plantations than the current BARN ETF from Global X; if so, I think would be a neat but very volatile exposure.