Comparing the Two Infrastructure ETFs

Includes: GII, IGF
by: Matthew D. McCall

A question I often get from investors involves one of my favorite long-term MegaTrends, infrastructure. They would like to know the best way to play the global trend with an ETF. Last week's introduction of the iShares S&P Global Infrastructure ETF (NYSEARCA:IGF) gave investors another option, but it may not be the answer to their question.

The new iShares ETF joins the SPDR FTSE Macquarie Global Infrastructure 100 ETF (NYSEARCA:GII) as the only two ETFs in the US that claim to concentrate on infrastructure investments. Since it began trading in late January, GII has returned over 20% and last week touched a new historic high. The iShares ETF does not have a track record as of yet, but according to the iShares website the index which the ETF mimics, S&P Global Infrastructure Index, it has done well over the last few years. The annualized returns over the 1-year, 3-year, and 5-year time frame are 26%, 26%, and 29%, respectively.

When I look for infrastructure investments for my clients there are a few areas I tend to favor: water infrastructure, toll roads, airports, power grids, and nuclear plants. Most of the companies involved in these areas are global players that are considered engineering and construction plays. The two infrastructure ETFs will offer some exposure to this companies, but they are by no means "pure play" infrastructure ETFs.

The sector breakdown of IGF shows 40% in utilities, 22% highways & railroads, 20% oil & gas storage & transportation, and 8% marine ports. GII is even more heavily weighted in utilities with 89% of the allocation in the sector. The US makes up 22% of IGF and 37% of GII, both attractive numbers because I believe investing outside the US is the better long-term strategy.

The top holding is identical for both ETFs: E.ON AG, a German utility company that has exposure to a number of European countries. The remainder of the top five differs completely between the two ETFs. When investing in an ETF one of the best ways to analyze it is by its top holdings. After researching the stocks in both ETFs it is clear the better investment choice is IGF based on exposure to toll roads in Europe in the top five.

Investors should consider IGF if they want to gain exposure to global infrastructure plays and do not mind a handful of utilities. Considering the Dow Jones Utility Index hit a new all-time high last week it should not be a problem.