The answer, through the lens of the ETF market, is both yes and
But looking ahead, the answer seems even murkier as the
eurozone's problems threaten to engulf the planet, and as China's
juggernaut seems as if it might be in its first secular slowdown
since Deng Xiaoping ushered in the Middle Kingdom's glory days
about 30 years ago.
But first the good news.
For the past 10 years, analysts from around the world have been
hammering home the idea that the emerging world would need to spend
billions to modernize infrastructure networks to be competitive on
the global stage. And rightly so.
The argument was that access to clean water, cheap electricity
and reliable transportation networks were keys to the future. This
would mean huge profits for investors in the companies providing
Then, back in 2008 when the U.S. and the global economy were
staring into the abyss, a laundry list of stimulus programs was
unleashed globally. That added some serious juice to a trend that
was already in place.
Much of this spending was aimed specifically at infrastructure
development-roads, ports or power distribution.
As such, analysts everywhere fell over each other predicting
massive gains for the companies operating in these industries.
And their enthusiasm wasn't just in the developing world, but
also in the developed world. After all, the obsolescence of the
roads, railways and energy grid here in the U.S. was arguably
holding the world's largest economy from fulfilling its own
ETF Market Response
Where there is the perception of an opportunity it seems ETF
managers have always been ready to pounce.
In this case, that meant building infrastructure portfolios, and
build they did.
First came the global infrastructure funds:the SPDR
FTSE/Macquarie Global Infrastructure 100 ETF (NYSEArca:GII) in
January 2007 and the iShares S&P Global Infrastructure Index
Fund (NYSEArca:IGF) in December of the same year.
As you can see by the chart below, both funds have produced huge
returns since the market bottom in March 2009, riding the wave of
global stimulus and investor enthusiasm to great success.
After all, with austerity plans either in place or about to
happen in much of Europe, it stands to reason that less
infrastructure spending is on the way.
Sure, the companies in these two ETFs are all multinational
behemoths with large footprints in Asia and South America, but it
still stands to reason that European economic weakness will weigh
more heavily on IGF's portfolio than GII's.
Both of these portfolios are heavily focused on the developed
world, with over 50 percent of portfolio assets by weight in Europe
and the U.S. This has been a boon to investors since 2009.
Newer ETFs Targeting The Developing World
But for long-term investors looking for exposure to the emerging
world, there are other choices.
The iShares S&P Emerging Markets Infrastructure fund
(NYSEArca:EMIF) and the PowerShares Emerging Markets Infrastructure
Portfolio (NYSEArca:PXR) both offer investors exposure to firms
with the largest footprint in the emerging world.
Moreover, the two funds look very different, with EMIF heavily
concentrated in China and Brazil-more than 57 percent of assets by
weight-while PXR is spread much more evenly across the emerging
There are also three single-country infrastructure funds aimed
at the emerging economies of the world.
Emerging Global Advisors has a fund for India (NYSEArca:INXX),
China (NYSEArca:CHXX) and Brazil (NYSEArca:BRXX). As you can see,
since the launch of INXX in 2010, the performance of all of these
funds has varied dramatically.
All five of these developing world infrastructure funds are down
in the past year, and INXX continues to lag its BRIC brethren.
It seems that the culmination of stimulus programs in the
emerging world, combined with concerns over global growth, has
wreaked havoc on these portfolios.
Less fiscal participation in the infrastructure market combined
with less economic activity is calling into question the
sustainability of this profitable trend for investors.
So while the case for global infrastructure has been made ad
nauseum, the recent performance of ETFs targeting this theme calls
into question the viability of the strategy moving forward.
For long-term investors, this may prove just a bump in the road
or, better yet, a fantastic buying opportunity.
On the other hand, investors looking for shorter-term value in
the space would do well to consider avoiding the theme until global
economic stability returns.
With the European debt crisis gaining steam, Greece threatening
to leave the eurozone and China so concerned about growth that it
rates, don't hold your breath.
Permalink | 'copy; Copyright 2009 IndexUniverse LLC. All rights
Don't forget to check IndexUniverse.com's ETF Data
2012 IndexUniverse LLC
. All Rights Reserved.