There has been a lot of talk recently that the one way we can get out of this severe recession would be to put people to work, and the one area that really needs work is infrastructure. Newly elected President Obama especially favors this, and has proposed a $90 billion (the figure changes) stimulus for infrastructure jobs. So what exactly is infrastructure and how can we invest in it. Infrastructure is just about everything around us, including roads, bridges, schools, buildings, mass transit, water projects, communications and power. The first thing that comes to my mind when thinking about fixing the infrastructure is the bridges because of the I-35W bridge collapse in Minneapolis in August 2007.

At a recent meeting, it was stated that there is at least $136 billion worth of infrastructure projects that can be started right away. According to a 2005 report by the American Society of Civil Engineers, it would take $1.6 trillion over five years to address the countries infrastructure problems. And it is not just the United States this is a worldwide situation. Other countries will want to upgrade their own infrastructure.

Hopefully congress won’t disapprove of this infrastructure stimulus and it can get going quickly, fixing the nations infrastructure, creating jobs and getting money to circulate again. There are several ways to invest in this new infrastructure by buying stocks in certain companies and specialized mutual funds and ETFs (Exchange Traded Funds). You don’t have to nor should you invest all of your money into this area or all at once. If the global economy does rebound and the infrastructure stimulus works in the US, look for new ETFs as this area of investing becomes more popular. When looking at the different ETFs, make sure you look at what they own and what percentage of the infrastructure areas they are invested heavily in. For example, Macquarie Global Infrastructure 100 is heavily invested in utilities, which makes it light in other areas of infrastructure. As of January 19, 2009, Macquarie Global Infrastructure 100 has almost 88% in utility stocks, which is too heavy in one area. Here are a few ideas in each category and this is not a total list of all infrastructure funds or stocks. Many of these ETFs and stocks have been hit hard by the recession, a rebound could occur in many of them.

Invest in Exchange traded funds and mutual funds

You can invest in ETFs and mutual funds that have most or all of their stocks in companies that deal with infrastructure companies.

• IGF – Global infrastructure fund.
• GII – Macquarie Global Infrastructure 100
• SLX – Market Vectors Steel is 100% invested in industrial materials, international steel companies.
• PHO – Powershares Water resources, the companies in this ETF are involved with delivering drinkable water and managing and treating water.
• MXI – iShares S&P Global Materials is 95% invested in industrial materials.
• PZD – Powershares Cleantech, the wave of the future for new buildings, commercial and government will be more energy-efficient. And that is what this ETF invests in. This is a cross between green and infrastructure funds.
• FLM – First Trust ISE Global Engineering and Construction
• PKB – PowerShares Dynamic Building and Construction, only US companies.
• XLB – SPDR Materials Select Sector – 90% industrial materials and a high volume ETF.
• KGICX – Kensington Global Infrastructure fund.

Many of these have low volume at this time, which makes them volatile, I like the FLM and the PKB since they invest in the engineering and construction aspects, which could benefit the most, though before anything can be built the materials need to be bought as well. Alternative energy stocks and funds could also be included in the infrastructure if new buildings will be required to have more solar for example.

Individual Infrastructure Companies

• ABB – ABB Ltd. Power and automation services for electric, gas and water utilities.
• FLR – Fluor Corp. Engineering, procurement and construction.
• JEC – Jacobs Engineering. Engineering, design, construction, architectural, consulting and modular construction.
• FWLT – Foster Wheeler provides engineering and construction services to the power plant, power generation and oil and gas industries.
• SGR – The Shaw Group is an engineering, technology, construction, fabrication, environmental and industrial services
• ACM – AECOM Technologies. They provide architecture, engineering, construction management, project management, asset management, and environmental consulting services to governments and industry including highways, airports, bridges, mass transit systems, government and commercial buildings, water and wastewater facilities, and power transmission and distribution.
• CX – Cemex is company in Mexico involved with the production, marketing and selling of cement and concrete.
• CBI – Chicago Bridge and Iron, which is in The Netherlands is an engineering, procurement and construction company.
• GVA – Granite Construction. Heavy civil construction contractor.
• MDR – McDermott provides services to US government owned facilities including environmental site restoration, power generation and boilers.
• TTEK – Tetra Tech Inc., consulting, engineering and technical services focusing on resource management and infrastructure.
• BKR – Michael Baker Corp. provides engineering, consulting, planning, construction management and surveying and architectural services the government and private sectors.
• PCR – Perini Corp. General contracting, construction management and design-build services to both the private customers and public agencies throughout the world.
• MIC – Macquarie Infrastructure Company. Owns, operates and invests in a diversified group of infrastructure companies mainly in the US.
• CAT – Caterpillar designs, manufactures, markets and sales of construction, mining and forestry equipment.
• TEX – Terex Corp. Manufacturer of equipment for the construction, infrastructure, quarrying, surface mining, shipping, transportation, refining and utility industries.

This is a fairly comprehensive list of the major companies that should be involved with the infrastructure boom if there is to be one. As with any stock you’re thinking of buying you should know and understand exactly what that company does and you should have at least a fair understanding of that business. It would be helpful to read everything you can that relates to the building of infrastructure so you can decide along with all the analysts as to which companies are getting the right contracts.

After this recession, many cities, states, the federal government and other countries will want to upgrade their infrastructure. This could be a good area to invest in.

Sam Montana © 25 January 2009

Basics of sector investing