Mutual Funds Show Weakness in Infrastructure

It's striking that with the exception of the lone exchange-traded fund on the list and a handful at the top of the roster, the fund industry has largely been ignoring this important segment of the economy.

You might think fund managers would be paying more attention to this area, given how rewarding it has been. The fund on the list with the biggest concentration in the transportation infrastructure stocks on our list has been providing its investors with handsome returns: The PowerShares Dynamic Building and Construction ETF(PKB) has risen 35.46% over the past 12 months, with 18.37% of that coming in the first seven months of 2007. The ETF has returned 15.02% on an annualized basis since its launch in October of 2005.

On the whole, these funds don't just have relatively low concentrations of assets in transportation infrastructure stocks; there's also a general lack of diversification in the group. Most hold only one or two of the 10 selected engineering, construction or materials firms.

The lone holder of six of the stocks is the (RYISX)Rydex Series-Sector Rotation Fund . The fund's name suggests that it may not stay in the area for the long haul,.

Another fund, (FSHOX)Fidelity Select Construction and Housing (FSHOX), holds five the selected transportation infrastructure stocks. But investors are more likely to be frightened by the last word in its name than to be attracted by the third.

The table below summarizes fund holdings in the 10 companies on our list. Some are large firms that would likely derive high revenue totals from stepped-up in spending on roadways, bridges and tunnels. Others are relatively small firms with high-percentage exposure to highway-related infrastructure.

The Most Likely Beneficiaries These stocks aren't widely held by U.S. mutual funds
Company	Ticker	No. of funds*	Value of holdings ($million)*	Market cap ($million)	% held by funds
Open-End Fund Holdings Summary
Caterpillar Inc	CAT	549	10,876.9	51,771.1	21.0
Cemex SAB de CV	CX	159	3,719.7	24,637.0	15.1
Chicago Bridge & Iron Co N V	CBI	131	1,389.4	3,643.4	38.1
Fluor Corporation	FLR	342	3,499.1	10,277.3	34.0
Granite Construction Inc	GVA	218	695.3	2,532.5	27.5
Hanson PLC	HAN	39	1,008.7	15,870.9	6.4
Jacobs Engineering Grp Inc De	JEC	245	1,915.8	7,401.8	25.9
Lafarge SA	LR	177	2,035.7	29,230.1	7.0
Nci Building Systems Inc	NCS	187	550.2	941.8	58.4
URS Corporation	URS	211	893.7	2,513.5	35.6
TOTAL			16,460.1	68,031.0	24.2
* Combined holdings of open-end, closed-end & exchanged-traded funds. Source: TheStreet.com Ratings (data as of 7/31/2007).

There is, by the way, nothing to suggest that the companies in the table are about to make an investor any sort of quick profit from the Minneapolis tragedy. Investors in companies participating in the rejuvenation of the highway system are likelier to receive steady returns over the lengthy rebuilding effort rather than quick payoffs.

All together, 1,251 open-end funds hold at least one of the stocks, with a combined position of $23.78 billion. That is miniscule involvement in the transportation infrastructure, considering the roughly $10 trillion in total net assets of U.S. mutual funds.

Among closed-end funds and ETFs, 148 hold an aggregate $2.80 billion in the group of selected transportation infrastructure stocks.

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