'Thematic' Investing vs Benchmark S&P 500

PowerShares put out a marketing piece suggesting its Dynamic Building and Construction Portfolio(PKB Quote) could be an investment proxy for the infrastructure theme. Thematic investing could become very important over the next decade. Broad-based indexes like the S&P 500 have been skewed by sector distortions, first caused by the technology sector earlier in the decade and now the meltdown in the financial industry that could be years away from healing.

If broad-based indexes won't work as they should, then themes would be a logical place to seek out positive returns. Infrastructure seems like a logical theme based on needs in foreign countries and the move afoot in the U.S. to commit resources to projects as part of the stimulus plan. Regardless of your politics or ideology, it seems pretty clear that money is going to be spent on infrastructure and companies in industry would seem poised to benefit.

Based on its name, PKB would seem to fit right into the theme. It holds builders of infrastructure projects, like Mastec(MTZ Quote) and Fluor(FLR Quote), engineers such as Jacobs Engineering(JEC Quote) and AECOM Technology, and earth movers including Caterpillar(CAT Quote). Those are names one would expect to see in an infrastructure fund. In addition, Home Depot(HD Quote), Lowe's(LOW Quote) and Tractor Supply(TSCO Quote) also feature prominently in the fund, making up 13% of assets.

Three retailers in an infrastructure fund might be a bit of a head-scratcher, but PKB isn't really an infrastructure fund. Look at the name: Building and Construction Portfolio. I wrote about this when it first listed in November 2005. Back then, admittedly, it was a different time. PKB was being put forth as a home-builder ETF, with 27% of assets in homebuilding stocks like DR Horton(DHI Quote) and KB Home(KBH Quote). In fact, those two homebuilders were a couple of the largest holdings in the fund back then but are out of the fund now. PKB has one homebuilding stock these days, NVR Corp.(NVR Quote), which has a 4.87% weighting, and several companies that make products that go in the home, like Lennox International(LII Quote) and Mohawk Industries(MHK Quote).