New ETF May Be Best Infrastructure Play

No fund like this one can realistically capture every country, though India is a glaring omission, given the state of that country's infrastructure.

A few months ago, PowerShares listed the Emerging Market Infrastructure Portfolio (PXR Quote), which, despite the name, is much different than the iShares fund. The PowerShares fund has a much broader mandate. It owns companies like Ingersoll-Rand(IR Quote) and Caterpillar(CAT Quote) because they do related business in emerging market countries. It also owns diversified mining and materials companies like Jianxi Copper(JIAXF Quote) and Norilsk Nickel(NILSY Quote), which are farther "upstream" in the build-out process.

iShares backtested the underlying index for correlation and price performance, and the results were disappointing. iShares Emerging Market Infrastructure Index had a 0.77 correlation to the S&P 500 and a 0.95 correlation to the MSCI Emerging Market Index. I would have hoped for more divergence than that.

In all likelihood, it's still early in the game for the global infrastructure theme, and if that is correct, a fund like iShares Emerging Market Infrastructure Index Fund should benefit. I also believe it could serve as a proxy for China, given the large weighting. The iShares Emerging Market Infrastructure Index Fund may turn out to be the best ETF to access the infrastructure theme in the next few years.