The collapse of a bridge in Minneapolis last week tragically punctuated years of warnings about deterioration of the nation's transportation infrastructure.

It now seems inevitable that there will be serious efforts to prevent future death and destruction. However, mutual fund investors wishing to participate in the rejuvenation of the U.S. highway system will find that they have few options.

Just as the condition of the nation's roads and bridges has been neglected by their keepers, mutual funds have generally neglected to invest in companies that are likely to be called upon the save the roadway system.

The accompanying table summarizes investment by funds in 10 selected companies that would likely supply the engineering, equipment, materials and construction work in the rebuilding of the nation's highway system:

  • Caterpillar (CAT)
  • Cemex (CX)
  • Chicago Bridge and Iron (CBI)
  • Fluor Corp. (FLR)
  • Granite Construction (GVA)
  • Hanson (HAN)
  • Jacobs Engineering Group (JEC)
  • Lafarge (LR)
  • NCI Building Systems (NCS)
  • URS Corp. (URS)

The list contains some large construction, engineering and materials firms that have historically been involved in transportation projects.

Although they are virtually certain to achieve benefits from the rebuilding effort, their diversified revenue bases mean that their bottom lines will not feel the full impact of the highway and bridge rejuvenation effort. So some smaller firms with total revenue more dependent entirely on transportation infrastructure were also included.

Funds With Exposure to Selected Transportation Infrastructure Stocks
Here are funds' holdings of these selected companies
Name, ticker and TheStreet.com Ratings grade* No. % of Portfolio Value ($million) Year-to-date return (%) 12-mo. total return (%)
Open-End Funds
Transamerica Premier Balanced Inv (TBAIX) C- 3 10.2 40.1 6.101 12.281
DF Dent Premier Growth (DFDPX) B 3 8.8 10.0 10.641 16.181
Fidelity Select Constn & Housing (FSHOX) D- 5 8.8 13.8 -3.093 13.958
TA IDEX Transamerica Balanced A (IBALX) D+ 3 8.6 17.6 5.658 12.588
Muhlenkamp Fund (MUHLX) D+ 2 8.0 179.4 -2.639 6.371
Transamerica Premier Equity Inv (TEQUX) C- 2 8.0 54.5 6.039 14.663
Transamerica Premier Divers Eq Inv (TPVIX) C 2 7.7 17.0 8.221 17.555
HSBC Investor Growth & Income B (HSGBX) C 2 6.9 3.3 9 18.831
TA IDEX Transamerica Equity B (ITQBX) D+ 2 6.5 112.3 5.042 14.155
New River Core Equity Fund (NRVCX) C+ 2 6.5 0.5 4.669 15.081
ING Neuberger Berman Partn Portf S (INBSX) U 3 6.3 26.3 3.853 17.672
CGM Focus Fund (CGMFX) C+ 1 6.2 155.4 30.355 26.456
Oak Assoc-White Oak Select Gr Fd (WOGSX) E 1 6.1 26.0 12.74 26.548
BNY Hamilton Multi-Cap Equity Fd (BKMCX) C 2 5.9 3.7 3.072 10.544
Rydex Series-Sector Rotation C (RYISX) C+ 6 5.6 16.9 10.728 22.942
AIM Mid Cap Basic Value A (MDCAX) B 2 5.6 15.5 9.906 24.367
Brandywine Advisors (BWAFX) C+ 3 5.4 13.8 13.894 25.3
Neuberger Berman Partners Inv (NPRTX) B+ 3 5.3 233.5 4.477 18.514
Commonwealth-Real Estate Securities (CNREX) B 3 5.2 0.8 -5.169 8.563
JPMorgan Latin America A (JLTAX) U 1 5.2 56.8
Aston/Optimum Large Cap Opp Cl N (AOLCX) U 2 5.2 0.1 16.633
WesMark Small Company Growth (WMKSX) C- 1 5.1 2.1 8.437 17.204
New River Small Cap Fund (NRVSX) C+ 1 5.1 2.9 8.867 16.447
Closed-End Fund
Dow 30 Premium & Dividend Income (DPD) B- 1 5.1 11.6 0.56 13.31
Exchange-Traded Fund
PowerShares Dynamic Bldg & Cons (PKB) B 4 16.3 3.3 18.37 35.46
* "U" is unrated.
Source: TheStreet.com Ratings (data as of 7/31/2007).

Only 23 open-end funds, one exchange-traded fund and a single closed-end fund hold cumulative positions of 5% or more in the 10 selected infrastructure companies.

It's striking that with the exception of the lone exchange-traded fund on the list and a handful at the top of the roster, the fund industry has largely been ignoring this important segment of the economy.

You might think fund managers would be paying more attention to this area, given how rewarding it has been. The fund on the list with the biggest concentration in the transportation infrastructure stocks on our list has been providing its investors with handsome returns: The PowerShares Dynamic Building and Construction ETF ( PKB) has risen 35.46% over the past 12 months, with 18.37% of that coming in the first seven months of 2007. The ETF has returned 15.02% on an annualized basis since its launch in October of 2005.

On the whole, these funds don't just have relatively low concentrations of assets in transportation infrastructure stocks; there's also a general lack of diversification in the group. Most hold only one or two of the 10 selected engineering, construction or materials firms.

The lone holder of six of the stocks is the ( RYISX) Rydex Series-Sector Rotation Fund . The fund's name suggests that it may not stay in the area for the long haul,.

Another fund, ( FSHOX) Fidelity Select Construction and Housing (FSHOX), holds five the selected transportation infrastructure stocks. But investors are more likely to be frightened by the last word in its name than to be attracted by the third.

The table below summarizes fund holdings in the 10 companies on our list. Some are large firms that would likely derive high revenue totals from stepped-up in spending on roadways, bridges and tunnels. Others are relatively small firms with high-percentage exposure to highway-related infrastructure.


The Most Likely Beneficiaries
These stocks aren't widely held by U.S. mutual funds
Company Ticker No. of funds* Value of holdings ($million)* Market cap ($million) % held by funds
Open-End Fund Holdings Summary
Caterpillar Inc CAT 549 10,876.9 51,771.1 21.0
Cemex SAB de CV CX 159 3,719.7 24,637.0 15.1
Chicago Bridge & Iron Co N V CBI 131 1,389.4 3,643.4 38.1
Fluor Corporation FLR 342 3,499.1 10,277.3 34.0
Granite Construction Inc GVA 218 695.3 2,532.5 27.5
Hanson PLC HAN 39 1,008.7 15,870.9 6.4
Jacobs Engineering Grp Inc De JEC 245 1,915.8 7,401.8 25.9
Lafarge SA LR 177 2,035.7 29,230.1 7.0
Nci Building Systems Inc NCS 187 550.2 941.8 58.4
URS Corporation URS 211 893.7 2,513.5 35.6
TOTAL 16,460.1 68,031.0 24.2
* Combined holdings of open-end, closed-end & exchanged-traded funds.
Source: TheStreet.com Ratings (data as of 7/31/2007).

There is, by the way, nothing to suggest that the companies in the table are about to make an investor any sort of quick profit from the Minneapolis tragedy. Investors in companies participating in the rejuvenation of the highway system are likelier to receive steady returns over the lengthy rebuilding effort rather than quick payoffs.

All together, 1,251 open-end funds hold at least one of the stocks, with a combined position of $23.78 billion. That is miniscule involvement in the transportation infrastructure, considering the roughly $10 trillion in total net assets of U.S. mutual funds.

Among closed-end funds and ETFs, 148 hold an aggregate $2.80 billion in the group of selected transportation infrastructure stocks.
Richard Widows is a financial analyst for TheStreet.com Ratings. Prior to joining TheStreet.com, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.

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