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Infrastructure Substitutes For Bechtel

Posted: Nov 13, 2008 08:44 AM by Gregory S. Davis

Tickers in this Article: OTC:NILSY., CAT, RIO, ABB, FLM, EFA, PXR, FLR

Despite the market decline, engineering projects have helped Bechtel deliver record revenue in 2007 and book new projects that could make 2008 even more profitable. Those people who are hoping that privately held nation-builder Bechtel will one day issue common shares to the public would be better off spending time evaluating the potential of new global engineering ETFs.

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Investing in global engineering ETFs gives investors the option to invest in this growth using public companies. (If you're an investor who likes to understand how and why your investment products work, then read An Inside Look At ETF Construction.)

First Trust Infrastructure Fund
In October First Trust Advisors introduced the ISE Global Engineering and Construction Index Fund (NYSE:FLM). The majority of the fund's investments are in infrastructure companies located in Japan, France, the Netherlands and Spain. Approximately 25% of the fund's investments are in U.S. companies. U.S.-based companies among the fund's top-10 holdings include engineering firms URS Corp (NYSE:URS) and Fluor (NYSE:FLR) as of September 30, 2008.

InvescoPowerShares Infrastructure Fund
InvescoPowershares also introduced the Emerging Markets Infrastructure Portfolio (AMEX:PXR) in mid-October. While the FLM fund has a nearly 95% concentration in industrials as of September 30th, PXR is split with 55% of its investments in Industrials and 40% of its investments in materials. Familiar industrial holdings include Swiss-based automation technology firm ABB Ltd. (NYSE:ABB) and U.S. earth moving equipment supplier Caterpillar (NYSE:CAT). On the materials side, investors will be familiar with Brazilian miner Companhia Vale ADS (NYSE:RIO) and nickel miner Norilsk Nickel Mining & Metallurgical (OTC:NILSY).

Reason to Pay Attention
The International Monetary Fund expects the deceleration in the global economy to persist until sometime in 2009. The slowdown may make it difficult for construction and engineering firms to kick off new projects that don't already have financing lined up. However, in response to the economic difficulties, encouragement from banks to make sensible lending decisions could ultimately benefit infrastructure providers. For example, Bechtel has completed a high-speed rail transportation project in the U.K. and a nuclear energy project in the U.S. The two projects are examples of future infrastructure developments that could receive financing since both projects are aimed at improving the quality of life. One provides an alternative mode of transportation, while the other provides a non-petroleum based form of energy production.

Final Thoughts
The state of the world's economy may be in flux, but the upward trajectory of the world's population is intact. On a planet of approximately 6.7 billion people that is estimated to grow to 9 billion by 2042, we will need to build more bridges, roads and communication services. Infrastructure providers like Bechtel and its partners should be just fine in the long term.

By Gregory S. Davis

Gregory S. Davis is an investment writer and consultant for his company G.Davis Capital Inc. His core methodology for choosing investments include patience, diversification and asset due diligence. Gregory is a graduate of the Wharton School of Business. He is also a board member of StoriesWork, a non-profit organization based in Durham, NC that uses storytelling to empower youth and individuals to utilize alternative dispute resolution tactics.

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