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ETFs for the Global Infrastructure Boom

Zoe Van Schyndel, CFA
May 15, 2008

Here's a novel source for investment ideas: Look at what Russian thieves are stealing.

According to Reuters, Russia has seen an upsurge in thefts of cement mixers, dump trucks, and cranes in response to a boom in construction and infrastructure spending. One thief stole an asphalt paver in broad daylight.

That's not the only sign that infrastructure spending around the world is booming. Developed nations are scrambling to rebuild decaying roads and bridges, while developing nations are putting in infrastructure for the first time. Morgan Stanley (NYSE: MS  ) raised $4 billion earlier this month for a private-equity infrastructure fund. With the potential diversification that investing in infrastructure offers, a handful of ETFs have emerged in the field. However, these funds have some important differences, so it pays to look at them carefully before investing.

Understanding infrastructure
The infrastructure upgrades you see around the world today typically involve transportation networks, energy pipelines, water supply systems, communications networks, and sewers and wastewater treatment systems. Infrastructure ETFs come in two flavors: those that are diversified across a broad range of companies and sectors, and those that focus on a specific area, such as a water or Internet infrastructure fund.

Narrowly defined infrastructure funds tend to be more volatile and riskier than more broad-based funds, as their fortunes are tied to a specific area of the economy. So for those looking to invest in a single infrastructure fund, we'll look at two broadly diversified ETFs.

The SPDR FTSE/Macquarie Global Infrastructure 100 ETF (AMEX: GII  ) is made up of nearly 100 companies engaged in management, ownership, and operation of infrastructure and utility assets. Top holdings include Exelon (NYSE: EXC  ) and National Grid (NYSE: NGG  ) . The fund is up about 4.5% in the past year.

The iShares S&P Global Infrastructure Index (NYSE: IGF  ) , with just 75 stocks, has a slightly narrower focus. Fund investments include global infrastructure companies from both developed markets and emerging markets, including Williams (NYSE: WMB  ) and El Paso Corp. (NYSE: EP  ) . Top sectors include utilities, industrials, and energy, while a quarter of the fund’s assets ar