A New Global Infrastructure Play

10/06/2010 1:00 pm EST

Focus: FUNDS

Mark Salzinger

Editor and Publisher, The No-Load Fund Investor

Mark Salzinger, editor and publisher of The No-Load Fund Investor, says a new fund from T. Rowe Price offers investors wide exposure to global utilities and infrastructure providers.

T. Rowe Price Global Infrastructure fund (TRGFX) combines investments in conservative, high-yielding electric utilities in the US with many other companies in the US and abroad that operate in various infrastructure and infrastructure-related industries.

[Manager Susanta] Mazumdar invests in foreign utilities; US and foreign engineering & construction companies; wireless communication infrastructure; railways; ports; alternative energy companies; natural gas pipeline companies, and [others]. The fund currently devotes about 30% of its assets to stocks in emerging markets, notably China, India, and Brazil.

Utilities currently account for about half the assets. Mazumdar hopes that the lower-risk American utilities investments and value-priced European stocks (along with a smattering of Japanese stocks) will combine with the higher-risk emerging markets investments to produce a portfolio of decent income, moderate risk, below-average volatility, and significant capital appreciation over a multi-year period.

Mazumdar looks especially for stocks with the potential to achieve stable cash-flow growth over many years. That’s a major reason he likes gas pipeline companies, which often operate under long-term contracts. The stability of the gas pipeline’s revenue is more valuable than the possibility that the price of the underlying commodity will skyrocket.

Typically, Mazumdar will identify a trend of growing demand in an infrastructure area within a country, and then invest in the most attractively valued participants. Within China, [for example,] investment in such infrastructure areas as roads, coal-sourced power plants, and ports is slowing, while investment in natural gas infrastructure, renewable and nuclear energy, and railways is increasing. So, for his investments in China and other countries leveraged to Chinese growth, he looks for stocks associated with those areas of growth.

India, however, is different. Rules for development vary, and nothing happens quickly there. Mazumdar says that it takes a great entrepreneur to navigate the Indian cultural and governing landscapes towards successful, money-making infrastructure development. The great investment opportunities there, he says, come from separating the winners from the losers.

Mazumdar expects the fund’s portfolio turnover rate to be 25% or less a year, which is very low. That’s because, he says, not very much changes from week to week or month to month in the companies he likes. Mazumdar says the fund is suited for an investor with an average risk tolerance who believes in the emerging markets story.

The fund opened for business in late January; since becoming fully invested several months ago, it has done very well. Over the past three months, for example, TRGFX has gained 6.1%, vs. an average of 1.5% for all of the global equity funds we track.

[Of course,] a slowdown in the global economy would hurt the near-term prospects of large portions of the portfolio. Mazumdar estimates that the fund’s current dividend yield is about 3.3%. (T.Rowe Price says its current expense ratio is about 1.1%, and its minimum investment is $2,500 or $1,000 for IRAs—Editor.)

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