When investing in infrastructure started to become popular, certain exchange traded funds held the promise of lower volatility and correlation to the broader market.

Two of these were the

Macquarie Infrastructure Company

(MIC) - Get Report

and

Brookfield Infrastructure Partners

(BIP) - Get Report

ETFs. I wrote about each in this capacity and turned out to be wrong on both accounts.

Macquarie Infrastructure simply blew up. Macquarie, an Australian investment bank known down under as the millionaire factory, made quite a business for itself by setting up similar funds around the world. Management's philosophy was to do a lot of transactions between funds or with other entities, and these required debt financing, so when the debt markets started to cease up, the funds imploded. The U.S. fund has dropped 90% in the past year and a half, and a similar Macquarie fund listed in Australia is down 60%.

Brookfield Infrastructure Partners has fared much better, though it didn't avoid the bear market. It tracked very closely to the

S&P 500 Index

. When I first wrote about Brookfield, it owned electrical transmission in Canada and Chile, and timberland in the Pacific Northwest. It was on the lookout for investments in airports and toll roads, among other types of infrastructure projects. While it hasn't invested in those yet, managers have put money in what the company calls "social infrastructure," which for now means a large stake in an Australian hospital, a U.K. hospital and a 50% interest in the Royal Melbourne Showgrounds, a 46-acre complex that includes office complexes and "exhibition space."

Brookfield focuses on paying dividends to investors. The quarterly dividend has been steady at $0.265 per share, which works out to a 7% yield at current prices. Dividends are paid out of adjusted net operating income (ANOI), which in 2008 was $1.65 per share, easily covering the $1.06 dividend. This year has been more difficult. In the first quarter, ANOI was $0.23, and in the second quarter, $2.01, though $1.80 came from the sale of an investment in Brazil. For now, the vast majority of the ANOI comes from electricity transmission. If timber strengthens, Brookfield would likely be able to cover the dividend without relying on asset sales or dipping into cash reserves.

The Macquarie and Brookfield funds were intended to be different than the

PowerShares Emerging Market Infrastructure Fund

(PXR)

and the

iShares Emerging Market Infrastructure Fund

(EMIF) - Get Report

. The former sought to invest in low-volatility dividend plays, and the latter focused on subsets of the emerging market equity space.

In past articles, I talked about giving new funds time to show what they really do as opposed to what they are supposed to do. It turned out that Macquarie Infrastructure was extremely risky, and Brookfield less so, as its decline was in line with the market. Weathering what is the worst financial crisis since the Great Depression should make prospective investors in Brookfield confident in its viability, even if the prospect of low correlation didn't work out.

At the time of publication, Roger Nusbaum had no positions in the securities mentioned.

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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