With the unemployment rate remaining high in the U.S., the
government is looking for ways to stimulate job creation. Its
latest attempt is a proposed $50 billion infrastructure plan that
will upgrade the nation's roads, railways and airports.
That's a drop in the bucket compared with the $2.2 trillion the
American Society of Civil Engineers estimates will be needed over
the next five years to address the creaky U.S. infrastructure. But
whatever gets spent is sure to provide investors with opportunities
to profit from the projects.
While the infrastructure ETFs available don't focus exclusively
or even tightly on the U.S., the good news for investors is that
such spending is needed all over the world, whether in developed
countries or in the emerging markets, where much of the economic
growth is now concentrated and expected to remain for years.
So, the variety of ETFs currently available to those who want in
on the action are either focused globally, on raw materials
critical to infrastructure or on the emerging markets in
Among the broad-based infrastructure funds, I think the iShares
S&P Global Infrastructure Index Fund (NYSEArca:IGF) is worth
checking out. It's composed of 75 stocks that invest in companies
around the globe.
The U.S. makes up 24 percent of IGF, followed by Australia at 10
percent. Utilities and energy make up 60 percent of the allocation,
and the ETF charges an expense ratio of 0.48 percent. The
composition of the ETF is not ideal for a stimulus program that
will concentrate on roads and rail, but it does offer global
Another one worth looking at is the SPDR FTSE/Macquarie Global
Infrastructure 100 ETF (NYSEArca:GII). This fund has 106 stocks in
its allocation-40 percent of which is in the U.S. and 11 percent in
Japan. It has an expense ratio of 0.59 percent.
The focus on utilities is even higher for GII, at 78 percent,
and most of the top 10 holdings are U.S. or European utility
stocks. Again, GII is not the best fit for an investor looking to
profit from road building in the U.S.
Building new roads and runways means there will be demand for
aggregate materials such as cement, steel, etc. Therefore, a
secondary play on infrastructure spending would be material ETFs
holding companies that supply the raw materials to the construction
The iShares S&P Global Materials Sector Index Fund
(NYSEArca:MXI) concentrates on the metals & mining (57 percent)
and the chemical (34 percent) sectors. The U.S. makes up 22 percent
of the portfolio that holds most of the large international metal
stocks in the top 10. There are a total of 121 stocks, and the
expense ratio is an acceptable 0.48 percent.
Two popular ETFs that are also in the materials sector are the
Vanguard Materials ETF (NYSEArca:VAW) and the iShares Dow Jones
U.S. Basic Materials Sector Index Fund (NYSEArca:IYM). The problem
with both ETFs in regard to infrastructure is that each is very
heavily invested in the chemical sector. If the goal was exposure
to the broad chemicals sector, both ETFs are great options. VAW and
IYM have expense ratios of 0.25 percent and 0.47 percent,
Emerging Market Spending
Developing countries from South America to Asia continue to
increase the amount of money spent on infrastructure to keep up
with their growing economies.
Indonesia, for example, recently announced its plans to double
its infrastructure spending over the next five years to $140
billion. Earlier this year, India made a similar declaration about
doubling infrastructure spending to $1 trillion during the 12
Plan period (2012-2017).
Investors have a choice of broad-based emerging market
infrastructure ETFs that encompass the entire geography, while
others focus on specific countries.
The iShares S&P Emerging Markets Infrastructure Index Fund
(NasdaqGM:EMIF) is made up of 27 stocks focused heavily on
transportation infrastructure and electric utilities. China and
Brazil make up 57 percent of the ETF, which is up 6 percent so far
The PowerShares Emerging Markets Infrastructure Portfolio
(NYSEArca:PXR) is more diverse, with 75 stocks in the portfolio and
less concentration on China and Brazil. The top-two emerging market
countries only make up 30 percent of the allocation, with South
Africa accounting for 10 percent. The ETF is up 8 percent
year-to-date and has an expense ratio of 0.75 percent-identical to
EMIF's. PXR is my choice of the two possibilities.
Position Your Portfolio Now
At the end of the day, it's clear the developed countries (the
U.S. and Western Europe) need to upgrade their existing
infrastructure systems. The developing countries need to focus on
creating infrastructure systems. The result will be trillions of
dollars flowing into the sector in the years to come. Now is the
time to position your portfolio with the appropriate ETFs.
Matthew D. McCall is editor of The ETF Bulletin and
president of Penn Financial Group LLC, a Ridgewood,
N.J.-based wealth management firm specializing in investment
strategies using ETFs.
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