New ETF May Be Best Infrastructure Play

With a slew of new exchange traded funds, infrastructure is fast becoming a new asset class. Right on cue, we now have the iShares Emerging Market Infrastructure Index Fund(EMIF), which offers something unique.

The ETF's industry breakdown favors transportation infrastructure (toll roads, sea ports and airports), at 33% of assets; electric utilities, 26%; and energy equipment, 20%. Another prominent group is index funds, specifically the iShares MSCI Malaysia(EWM), iShares MSCI South Korea(EWY) and the iShares MSCI Chile Investable(ECH) ETFs. The three index funds total 9.1% of Emerging Market Infrastructure.

The reason there are other index funds in this index fund has to do with the ETF creation and redemption process. Those three countries don't allow for so-called in-kind transfers, which are what makes ETFs tax-efficient. But iShares says the exposure to those countries is important enough to warrant the country ETFs, but they obviously dilute the effect. If iShares didn't use the index funds, the running of the fund would be more expensive and less tax-efficient.

At the country level, the Emerging Market Infrastructure Index Fund has a lot of the usual suspects but also some you might not expect. China is the largest, at 33%, followed by Brazil, with 14%. Surprises are Argentina, 9%, and the Czech Republic, 7.5%. Argentina's weighting is in pipe maker Tenaris(TS) and the Czech Republic's is in CEZ Ceske(CZAVF), a big utility company.

Ten of the 25 stocks in the fund are Chinese (nine from Hong Kong and one traded on the New York Stock Exchange). They appear to be an excellent way to capture the story happening on the ground in China, as opposed to China ETFs, which tend to be heavy in financial stocks. The Chinese names include toll-road and port operators, and energy-delivery companies, recipients of investments by China.