Emerging markets contain more than 40% of the world's population
and now account for about one third of the world's
gross domestic product (
. And that number keeps growing.
Yet most of these countries still have vastly inadequate
infrastructure. Things like roads and bridges, water facilities,
power plants and transmission lines, etc. will be needed to sustain
present and future growth. Flush with cash from the last decade's
growth, the infrastructure build-out in many of these countries has
begun. China's massive four trillion yuan ($586 billion) stimulus
package last year, for example, involved an enormous amount of
spending on infrastructure.
Many developed nations have aging infrastructures badly in need
of upgrades as well. For example, the U.S. Bureau of Transportation
Statistics issued a report last year declaring that one quarter of
the more than 600,000 bridges in the United States are either
"structurally deficient" or "functionally obsolete."
As a result of this confluence of circumstances, infrastructure
spending is about to explode. In fact, analysts estimate that
governments throughout the world will spend $2 trillion a year on
infrastructure projects through 2015 and $35 trillion over the next
What's the best way to get in front of this trend?
While many individual companies will benefit, an easy way to
play the trend is with an
exchange-traded fund (
that embraces the theme as a whole. The emergence of the
infrastructure segment is a relatively new phenomenon, but there a
few investments to choose from. The
iShares S&P Global Infrastructure Index
tracks the S&P Global Infrastructure Index , which is comprised
of large infrastructure companies from all over the world involved
primarily in utilities, energy and transportation infrastructure.
As of June 11th, IGF had the largest concentrations of its
portfolio invested in the United States (25%) and Canada (10%), but
also had significant investments in Western Europe, Australia and
China. The portfolio breakdown by sector is in utilities (40%),
industrials (37%) and energy (21%). The array of investments
includes companies involved in oil & gas transportation and
storage, airport services, highways and marine ports and electric,
gas and water utilities.
's largest positions include north-of-the-border pipeline and
TransCanada Corp. (NYSE:
, Canadian-based energy transportation and distribution provider
Enbridge Inc. (NYSE:
and German multinational utility
E.ON AG (Nasdaq:
As many of these holdings are companies that generate
predictable cash flows, IGF pays a decent distribution. Payments
are made twice per year in December and June. The last two
distributions totaled $1.14 a share, making for a respectable 3.7%
yield based on recent prices.
Action to Take -->
With a fund like IGF, investors get a portfolio of 81 different
companies involved in the worldwide infrastructure build-out taking
place. As an ETF, the fund provides a diversified portfolio of
companies, allowing investors to ensure they benefit from the trend
without taking the risks of holding any one company. IGF is a great
way to play the overwhelming wave of infrastructure spending during
the next decade.
Disclosure: Tom Hutchinson does not own shares of any security
mentioned in this article.
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