Companies involved in the operation of toll roads, airports and seaports represent a new asset class, according to some industry experts.
"Infrastructure should be its own asset class, just like stocks and bonds," Robert Froehlich, vice chairman and chief investment officer of DWS Investments of New York, a unit of Deutsche Asset Management Inc. of New York, wrote in an e-mail he sent out to investors Sept. 2.
It's a belief that's gaining traction. Several exchange traded funds and mutual funds have been launched recently that invest solely in infrastructure companies.
DWS Investments launched the DWS RREEF Global Infrastructure Fund (TOLLX) June 20. It followed the launch of the iShares S&P Global Infrastructure Index ETF (IGF) from
Barclays Global Investors of San Francisco on Dec. 10, 2007, and SPDR FTSE/Macquarie Global Infrastructure 100 ETF (GII) from
State Street Global Advisors of Boston on Jan. 25, 2007.
Earlier mutual funds include the Phoenix Global Infrastructure Fund (PGUAG), launched by Phoenix Investment Counsel Inc. of Hartford, Conn., on Dec. 30, 2004, and the Cohen & Steers Global Infrastructure Fund (CSUAX) launched by Cohen & Steers Capital Management Inc. of New York on May, 24, 2004.
SLOW TO GATHER STEAM
These ETFs and mutual funds, however, have been slow to gather assets.
Being new, it's understandable the DWS infrastructure fund would have just $63 million in assets. But the older infrastructure funds — the Phoenix and Cohen & Steers funds — have just $83 million and $101 million, respectively. And the iShares and SPDR infrastructure ETFs had $155 million and $91 million, respectively.
Of course, the failure of such products to rake in assets may have to do with their recent performance. All were trailing the Standard & Poor's 500 stock index, which was down 12.36% year-to-date as of Sept. 8, according to Morningstar Inc. of Chicago.
Such short-term underperformance, however, doesn't take away from the fact that infrastructure remains a good long-term investment, argued Mr. Froehlich. Privatized toll roads, seaports and airports are "revenue machines," he wrote.
Financial advisers said they see the logic of investing in infrastructure companies, but they did not agree that it should be considered its own asset class.
"It's an interesting area for investment," said Charles Lieberman, strategist and chief economist with Advisors Capital Management LLC, a Paramus, N.J.-based firm with $250 million in assets. "The infrastructure in the [United States] is relatively old and not well-maintained, and then there are the emerging markets, which don't have much infrastructure."
But to classify companies involved in infrastructure as a separate asset class seems like marketing, he said. "If you think of [infrastructure] as an asset class, it forces those investors that want to diversify into every asset class to put some money in that area."
There is an argument to be made, however, that infrastructure companies don't act like other investments, said Armond Dinverno, a financial adviser and co-president of Balasa Dinverno & Foltz LLC of Itasca, Ill., which has $1.5 billion in assets under management. But it's still "a little early" to say infrastructure truly is a separate asset class, he said.
"I think there is certainly controversy as to whether it is or isn't an asset class," said Thomas Idzorek, chief investment officer and director of research and product development at Ibbotson Associates Inc. of Chicago. There is enough debate that Ibbotson hasn't yet come to a conclusion on the topic, he said.
The company, however, is working on a white paper it hopes to release in the coming months that should help clear up the debate, Mr. Idzorek said. For now, however, Ibbotson isn't willing to take sides, he said.
Mr. Froehlich, however, is confident the investing community will come around to his way of thinking. "In my mind, there is simply no doubt that within five years, every strategist on Wall Street is likely to join me and view infrastructure as a stand-alone asset class," he wrote.
Until that time, he suggests that investors who want to be ahead of the curve invest as much as 15% of their portfolios in infrastructure.
Richard Schroeder, executive vice president of Schroeder Braxton & Vogt Inc., an Amherst, N.Y., financial advisory firm with $220 million in assets, was skeptical.
"Maybe in the long run it's a good investment," he said. But he thinks it seems more likely that asset managers are trying to sell a trend.
E-mail David Hoffman at [email protected].
