The Building Blocks of Infrastructure ETFs
March 13th, 2010 at 1:00pm by Tom Lydon
For any country to grow or at least remain stable, there needs to be significant investment in infrastructure. That means it’s good news for infrastructure exchange traded funds (ETFs) that financing for such projects could stabilize or grow this year.
According to Fitch Ratings, global infrastructure and project finance rating outlooks in 2010 for most sectors are stabilizing and improving, writes Brian Bertsch for RiskCenter. The outlook is dependent on the anticipated gradual global economic recovery through the year. [Why 2010 Could Be Infrastructure's Year.]
Other interesting points noted by Fitch include:
- Infrastructure assets with structurally low volatility, like availability payment structures for social infrastructure or transportation, and contracted power and energy assets, have remained relatively stable.
- Companies with considerable market exposure, including merchant power, and those engaged in discretionary spending like airports, maritime ports and pub companies, have been negatively impacted. [Infrastructure ETFs: The Consequences of Not Spending.]
- The speed of the economic recovery and inflation, along with the disparity between revenue and cost growth, will determine credit quality. Additionally, the volatility of commodity prices will affect energy and transportation projects. Counterparty risk still remains a factor.
Investors should keep an eye on how infrastructure assets in developing economies perform compared to those in developed economies. Emerging markets have shown strength during and after the financial crisis, and they are expected recover faster than developed markets.
In the last few months, the number of infrastructure ETFs has ballooned from a few broad ones to six such funds that range from all-encompassing to a fine-tuned focus on single countries. You can spot opportunities in these funds by watching the 200-day moving average (or waiting until a 200-day moving average has been established in newer funds). [Read More About Trend Following in The ETF Trend Following Playbook.]
For more information on infrastructure, visit our infrastructure category.
- SPDR FTSE/Macquarie Global Infra 100 (NYSEArca: GII)
- PowerShares Emerging Markets Infrastructure (NYSEArca: PXR)
- iShares S&P Global Infrastructure Index (NYSEArca: IGF)
- iShares S&P Emerging Markets Infrastructure (NASDAQ: EMIF)
- Emerging Global Shares INDXX China (NYSEArca: CHXX)
- Emerging Global Shares INDXX Brazil (NYSEArca: BRXX)
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.