Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some emerging-market-focused stocks to your portfolio, the PowerShares Emerging Markets Infrastructure ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF’s expense ratio — its annual fee — is 0.75%. The fund is fairly small, so if you’re thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has underperformed its benchmarks over the past three years, but what matters most are your forward-looking expectations, as the world’s economies heat up. As with most investments, of course, we can’t expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why emerging-market infrastructure?
Our global economic slump won’t last forever, and emerging markets, by definition, have a lot of development plans. Thus, companies specializing in materials and utilities are poised to prosper as construction and infrastructure projects get under way and manufacturing kicks into a higher gear.
More than a handful of emerging-market infrastructure specialists had strong performances over the past year. Mexico-based global cement giant Cemex SAB de CV (ADR) (NYSE:CX) surged 58%, for example, and is near a 52-week high, benefiting partly from sales in the U.S. The company is expected by some to return to profitability next year. Still, its negative free cash flow is worrisome, as is its considerable debt, despite refinancing. A bright spot is the CEO’s expectation of price hikes in the U.S.
Other companies didn’t do as well last year, but could see their fortunes change in the coming years. Brazilian steel company Gerdau SA (ADR) (NYSE:GGB) is down 22%, but has been investing in building its capacity, which might be smart, given that Brazil is building for the 2016 Olympics and the 2014 World Cup, among many other projects. Its revenue and earnings have been growing, and its free cash flow is positive. Its forward P/E has recently been just 10.