A Piece of Obama Plan Gets Wall Street Support

BOSTON (TheStreet) -- There was no better time than Thursday night for a complete blackout to cripple a major metropolitan area in the U.S.

As President Barack Obama addressed Congress with his outline for creating jobs in America, a plan that includes the formation of an infrastructure bank to rebuild and expand the nation's flagging infrastructure, San Diego and the surrounding area went dark. Ironically, that meant 1.4 million residents without power couldn't watch the president's speech on job creation through improving and expanding the country's wilting infrastructure.

"It's another example of why we do need to invest in this country's infrastructure," says Mark Weisdorf, CEO of J.P. Morgan Asset Management's Infrastructure Investments Group. Weisdorf is responsible for more than $5 billion in infrastructure assets, including ports, water systems and airports, among others.

"It's about electricity transmission lines, especially after we suffered several major blackouts in the last few decades," Weisdorf continues. "It's about roads, rails, airports, seaports, water, waste water. There is a significant need for new and better infrastructure. There are a number of areas where we've fallen behind and we haven't kept up with the infrastructure needs. That blackout is just one example."

Obama's call for an infrastructure bank as part of his grand American Jobs Act may have a tough time passing in Congress, but promoting private investment in U.S. infrastructure is the right plan and can greatly benefit investors, professional money managers such as Weisdorf say.

Obama's four-point jobs plan, with a price tag of $447 billion, proposes the creation of an infrastructure bank that would combine private investment with public infrastructure construction. The bulk of the plan is dedicated to slashing payroll taxes, with the infrastructure bank going for a modest initial federal investment of $10 billion.

"Although that $10 billion will be significant in bringing public and private sector finance and filling a gap, it's not a large amount in the scheme of a $447 billion plan," Weisdorf says. "It's been well thought-out and it's intended to be self-sustaining. It's not intended to be grants, but instead lending and loan guarantees. "

Other professional investors who specialize in infrastructure assets agree that the creation of a figurative bridge between public infrastructure and private investment is needed at this critical time, especially with unemployment hovering above 9.1% and with fewer and fewer private-sector jobs added to payrolls each month.

"We absolutely need an infrastructure bank," says Josh Duitz, co-portfolio manager of the Alpine Global Infrastructure Fund ( AIFRX). "We need to promote private investment in infrastructure. There are billions of dollars sitting on the sideline that will invest in infrastructure through privatization. An infrastructure bank could be a catalyst to make that happen."

So what makes something as unsexy as a bridge, road or seaport a good bet for investors? Predictability and low volatility. For investors who have seen the Dow Jones Industrial Average make a round trip from 10,995 on Tuesday to nearly 11,500 Thursday and back to 10,995 by Friday, the promise of a low-volatility investment with dependable cash flows is a breath of fresh air.

"The returns on the infrastructure assets have a very low correlation to equities and fixed income. So you get real diversification benefits," Weisdorf says.

Equity markets have rewarded investors with huge returns since the March 2009 lows, but there has been a great deal more volatility, especially in the past few months with questions over credit, sovereign debt and bank liquidity in Europe. Even investors in assets such as fixed income have been dealt a rash of volatility, with prices on the 10-year U.S. Treasury dropping below 2% as prices have rallied on a flight to safety by investors.

Buying the infrastructure asset itself is difficult for individual investors and is better suited for pension funds and large institutional investors. That said, Weisdorf and Duitz say investors have plenty of access to plays on rebuilding and expanding the U.S. infrastructure through Obama's plan.

"Investors are going to look for names to invest in because of this bill, as the whole plan is greater than people initially expected," Duitz says. "In terms of playing the bill, there is quite a bit of uncertainty. When you generally hear of more stimulus in the U.S., you see investors jump on names like Martin Marietta ( MLM) and Vulcan Materials ( VMC) because that's usually the way to play it. But in reality, there are a lot of private construction firms benefitting from increased spending."

Duitz's portfolio contains infrastructure stocks in the U.S. and abroad. Some of his favorite plays for long-term spending are Spain's Ferrovial SA and Abertis Infrastructuras SA, which have operations in the U.S. and engage in constructing and managing transportation and communications infrastructures.

Additionally, Duitz likes Union Pacific ( UNP) as the company has operational leverage in an economic upturn, but has also proven it can cut costs and still grow earnings if the U.S. stumbles into another recession. He also owns Progressive Waste ( BIN), a waste-management company that has been able to grow earnings through acquisitions.

Weisdorf, meanwhile, notes that although he doesn't recommend specific equities, there are certain sectors in which a retail investor can find plenty of opportunities. He points to regulated electrical utilities and master limited partnerships.

"Regulated utilities, on average, tend to exhibit less market volatility than other sectors and there is a higher cash or dividend component of their total return. That can help reduce the volatility relative to other sectors," Weisdorf says. "We do see in the oil and gas sector an interesting opportunity. The discovery of shale gas and other forms of conventional gas is so large in the U.S. that we really have an opportunity to be a net exporter of gas rather than a net importer of gas."

The only question that remains is if the infrastructure bank will actually pass through Congress, which has been sharply divided on nearly every issue down party lines, from health-care reform to financial-regulation reform to raising the debt ceiling. This dysfunction even led to a downgrade of U.S. debt by credit-rating agency Standard & Poor's last month.

One day after the president's appearance before Congress, Republicans have already spoken out against the infrastructure bank plan. In an interview on CNBC Friday morning, Rep. Eric Cantor (R.-Virginia) said that creating an infrastructure bank "is almost like creating a Fannie Mae and Freddie Mac for roads and bridges. We don't want to do that. We've already been there, done that. We know what can happen."

Investment managers say it would be a mistake to dismiss the notion of bridging the gap between public infrastructure and private investment, and they argue the proposed plan has bipartisan support.

"Because it's a bipartisan act sponsored by both senior Democrats and senior Republicans, and because it has the support of both the AFL-CIO and the U.S. Chamber of Commerce, it has a very good shot of passing," Weisdorf says.

The American Society of Civil Engineers indicated in 2009 that the U.S. needs $2.2 trillion over five years to invest in infrastructure across all sectors. Though there are sources of funds from state and municipal governments, there is an insufficient amount to meet that demand over the next few years, which is why the infrastructure bank is needed.

"Since our government doesn't have the money to spend, we use the private sector to get involved to spend on building and rebuilding infrastructure," Duitz says. "A municipality or state isn't efficient and effective in owning infrastructure assets. In the U.S., we need to get more private company involvement."

"We're not going to be able to bring the country's infrastructure up to even a safe standard, never mind a competitive, leading-edge standard without private sector involvement," Weisdorf adds. "It's critical."

-- Written by Robert Holmes in Boston.

>To contact the writer of this article, click here: Robert Holmes.

>To follow Robert Holmes on Twitter, go to http://twitter.com/RobTheStreet.

>To submit a news tip, send an email to: tips@thestreet.com.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

More from Personal Finance

Best Real Estate Markets for Homeowners in the U.S.

Best Real Estate Markets for Homeowners in the U.S.

How to Be a Winner Like Legendary Former General Electric CEO Jack Welch

How to Be a Winner Like Legendary Former General Electric CEO Jack Welch

Best U.S. Cities for New College Grads

Best U.S. Cities for New College Grads

33 Pictures of the Drastic and Deadly Impacts of Climate Change

33 Pictures of the Drastic and Deadly Impacts of Climate Change

30 Mind-Blowing Concept Cars and Cars of the Future We Want to See Built

30 Mind-Blowing Concept Cars and Cars of the Future We Want to See Built