NEW YORK (TheStreet) -- A globally diversified equity portfolio should include exposure to emerging markets, but emerging market investing has become trickier in the last couple of years.In the early years of the emerging market renaissance during the last decade, exposure was as easy. From its inception in 2003 until 2007 the iShares MSCI Emerging Market Index Fund ( EEM) was up 390% while the S&P 500 was up 76%. The last two years have been a much different story; the S&P 500 is up 17% while EEM is down 15%. Whether the last couple of years is a reversion to the mean or something else, investing in emerging markets now requires more selectivity. As the emerging market cycle, or maybe it was a super-cycle, has matured, one area that has continued to do relatively well has been areas with lower volatility and higher yield focusing on areas where money must be spent. This leads the conversation to the iShares Emerging Markets Infrastructure ETF ( EMIF) and its 2.9% trailing yield versus a trailing yield of 1.76% for EEM. For two years, EMIF is down 3% versus 15% for EEM, and for the last one year it is up 5% versus a decline of 1% for EEM.
Unlike emerging-market infrastructure funds from other ETF providers, EMIF has more of a focus on utilities with that sector accounting for almost 70% of the fund. It takes some looking under the hood to come up with the 70% figure because the information page shows closer to 28% in utilities. The difference is the 40% allocation to an area referred to as transportation infrastructure. This industry is mostly comprised of publicly traded toll roads and airports that are the end result of infrastructure buildouts. These companies are often mature, have lower volatility and higher yields. This contrasts with some funds such as the PowerShares Emerging Markets Infrastructure Portfolio ( PXR), which has 51% in industrial stocks and 43% in materials which are obviously more volatile than utilities.
If it is late in the cycle, that means the cycle will end and then after a time a new cycle will begin. When that happens it is likely the more cyclically sensitive PXR will be the one to outperform. Again, this is not about one fund being better but about understanding what the differences in how funds are constructed will mean for fund holders. At the time of publication EMIF was a client holding. Follow @randomroger This article was written by an independent contributor, separate from TheStreet's regular news coverage.