Comparing the Infrastructure ETFs
January 20th, 2011 at 2:00pm by Tom Lydon
Before you buy an exchange traded fund (ETF), you should take a few minutes to pop the hood and have a look-see. Skip this crucial step, and you could wind up with an unwanted surprise.
This is especially important when you’re comparing multiple funds across the same asset class or sector. Take infrastructure.
Currently, there are more than half a dozen infrastructure ETFs that all include the word “infrastructure” in the name and target the same area, notes Roger Nusbaum for TheStreet. However, each fund is different, with its own set of attributes.
The infrastructure sector is expected to see a strong tailwind as it gets a copious cash infusion over next few years. More than $1 trillion is allocated in India alone for 2012 to 2017. Still, risks include normal market volatility, inefficient allocation of money and potential corruption.
The SPDR FTSE/Macquarie Global Infrastructure 100 ETF (NYSEArca: GII) was the first ETF in the space. GII has a large weighting of 85% in utilities, which makes it less volatile than other infrastructure funds. The fund didn’t plummet during the downturn, but it also didn’t go up as much when the markets improved. This risk here, though, is that utilities will get hit when interest rates rise since money flows to bonds. [Coming to America with Infrastructure ETFs.]
The PowerShares Emerging Markets Infrastructure Portfolio (NYSEArca: PXR) is heavily weighted toward industrial stocks at 56% and also allocates 40% to material stocks. The high allocation to materials, along with its emerging market status, makes the fund rather volatile. The fund could do poorly if the markets go down or if commodities correct.
Emerging Global Shares also provides a kind of middle ground between GII and PXR, with its EG Shares India Infrastructure ETF (NYSEArca: INXX), EG Shares Brazil Infrastructure ETF (NYSEArca: BRXX) and EG Shares China Infrastructure ETF (NYSEArca: CHXX). The three funds are a little more balanced at the sector level as compared to either GII or PXR, but the funds will be largely affected by any corrections in their respective markets. [This Sector Could Power India ETFs in 2011.]
For more information on the infrastructure sector, visit our infrastructure category.
Max Chen contributed to this category.
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.