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Why Infrastructure Funds Look Shaky

Even if the outlook for spending on highways and bridges is uncertain, there is still a good case for holding utilities. With demand for gas and power steady, utilities stocks tend to pay solid dividends and deliver consistent earnings. For investors seeking a utilities fund, the SPDR infrastructure ETF makes a sound choice. The fund yields 4.7%. During the past three years, it has returned 5.2% annually, outdoing iShares S&P Global Utilities by 2 percentage points. Part of the reason for the gap is that the iShares fund has 33% of its assets in poor-performing European markets. The SPDR fund only has 28% of assets in the troubled region.

A broader infrastructure fund with a decent record is iShares S&P Global Infrastucture (IGF), which has 41% of assets in utilities, 20% in energy, and 37% in industrials. Holdings include Spectra Energy (SE), an operator of gas pipelines, and Dominion Resources (D), a Virginia power producer. Because of the energy and industrial holdings, iShares S&P Global Infrastructure is more volatile than the SPDR competitor. During the past year, the iShares fund lost 7.4%. But industrial stocks provided a boost in the rally that began in 2009. During the past three years, the iShares fund returned 8.2% annually, outdoing the SPDR infrastructure fund.
Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
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