The Surprising New Growth Sector
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 (GDP). 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 twenty years.
What’s the best way to get in front of this trend?#-ad_banner-#
While many individual companies will benefit, an easy way to play the trend is with an exchange-traded fund (ETF) 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 (NYSE: IGF) tracks the S&P Global Infrastructure , 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.
The ETF‘s largest positions include north-of-the-border pipeline and energy utility TransCanada Corp. (NYSE: TRP), Canadian-based energy transportation and distribution provider Enbridge Inc. (NYSE: ENB) and German multinational utility E.ON AG (Nasdaq: EONGY).
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.