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) - Get Report

, 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) - Get Report

,

iShares MSCI South Korea

(EWY) - Get Report

and the

iShares MSCI Chile Investable

(ECH) - Get Report

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) - Get Report

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.

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)

, 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) - Get Report

and

Caterpillar

(CAT) - Get Report

because they do related business in emerging market countries. It also owns diversified mining and materials companies like

Jianxi Copper

(JIAXF)

and

Norilsk Nickel

(NILSY)

, 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.

At the time of publication, Nusbaum held CAT in client portfolios, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;

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