Why Infrastructure Mutual Funds Hold Up

NEW YORK (TheStreet) -- Most global funds sank last year.

With investors unnerved by debt problems and sluggish economic growth, stocks sank in Europe and the emerging markets.

During 2011, Morningstar's category of world stock funds, which invest in U.S. and foreign markets, lost 7.9%.

But funds specializing in global infrastructure avoided much of the trouble. For the year, Morgan Stanley Global Infrastructure(UTLAX) returned 16.3%, while Cohen & Steers Global Infrastructure(CSUAX) gained 2.2%.

Other funds with above-average results included Forward Global Infrastructure(KGIAX) and T. Rowe Price Global Infrastructure(TRGFX).

The strong showing of the infrastructure funds is not surprising. The funds invest in pipelines, utilities, and railroads -- companies that can prove resilient in downturns.

In recent years, a growing number of pensions and other conservative institutions have been attracted to infrastructure funds because the holdings tend to be near-monopolies with reliable cash flows. Infrastructure stocks pay healthy dividends, which can prop up the stocks in downturns.

Infrastructure portfolio managers say that they can find plenty of growth opportunities in the U.S. and abroad. In the emerging markets, countries must spend heavily for years to build basic infrastructure.

Companies in the developed world will expand more slowly, but there should be growth as governments and private developers spend to replace aging facilities.

"With an infrastructure portfolio, it is possible to get a 4% dividend yield and earnings growth in the high single digits," says Robert Becker, portfolio manager of Cohen & Steers Global infrastructure.

Most of the infrastructure funds have been launched in recent years as investors have turned their attention to the growing need for expanding facilities.

So far, the track records of infrastructure funds are too short to draw firm conclusions. But the early results have been encouraging as the funds have proven to be defensive investments.

Among the steadiest infrastructure holdings last year were utilities. As markets tumbled, investors flocked to regulated power and gas producers, which provide steady earnings and fat dividends.

Seeking safety, T. Rowe Price Global Infrastructure keeps about half its assets in utilities. The rest of the portfolio is in railroads, toll roads and other infrastructure companies.