Public Projects Offer Opportunities
Companies that build infrastructure, such as power plants and roads, can be stable investments
Visitors to the Beijing Olympics saw the products of a remarkable construction campaign: new highways, bridges, power plants, and airports. Seeking to develop their economy, the Chinese are racing to build modern infrastructure. China is hardly alone in its boom.
Throughout the emerging markets of Asia and Latin America, politicians and private companies are building. In the United States and other industrialized countries, governments are earmarking billions of dollars to repair aging roads and ports.
For investors, the huge construction projects offer unusual opportunities. At a time when stock and bond markets are volatile, companies that build infrastructure can be stable investments. Companies that operate power plants and toll roads pay high dividends and report steady earnings. What's more, the need for infrastructure spending constantly grows. “There will be huge potential for profits in infrastructure for decades to come,” says Mark Biegel, managing director of Biegel & Waller, an investment advisor in Columbia, Md.
In recent years, many infrastructure shares have been outpacing the blue-chip benchmarks. Infrastructure stocks can help to diversify a portfolio because they sometimes rise when most other shares are languishing.
To appreciate the appeal of stocks in the sector, consider the Standard & Poor's Global Infrastructure Index, a benchmark that includes 75 large companies, with 40% of assets in utilities, 40% in transportation, and 20% in energy. During the five years ending in June, the S&P index returned 22.7% annually, about 10 percentage points ahead of global stocks. The stocks in the index currently pay a dividend yield of 3.6%, compared with a yield of 2.2% for the S&P 500.
To invest in the index, try iShares S&P Global Infrastructure Index, an exchange-traded fund (ETF). The fund gives broad diversification, holding stocks from 19 countries, with 25.4% of assets in the United States, 8.9% in Germany, and 5.2% in China. Big holdings include TransCanada, a pipeline company, and Iberdrola, a Spanish utility.
Another ETF is SPDR FTSE/Macquarie Global Infrastructure 100. This keeps 89% of assets in utilities. Big holdings include E.On, a German utility, and FPL, an electric producer based in Florida. The fund has 38% of assets in the United States, with 12% in Germany and 0.3% in China.