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Funds turn to infrastructure investments

FUNDS REPORTER

Toll roads, seaports and utilities may not seem like sexy investments, but they are part of what some see as an emerging, attractive asset class.

Investing in infrastructure has become a hot sector in recent years for pension funds seeking steady cash flows to meet obligations to retirees.

But more investment companies are jumping on the bandwagon to give retail investors a chance to profit too.

Toronto-based Mackenzie Financial Corp. is the latest to join the infrastructure trend with today's launch of the Mackenzie Universal Global Infrastructure Fund.

Other mutual funds include Investors Global Infrastructure Class and the Criterion Infrastructure Water Fund, which invests in water-related stocks.

Infrastructure is defined as physical assets required to run an orderly society and are often highly regulated. They can include transportation (toll roads, airports, seaports); energy (gas and electricity generation); water (pipelines and treatment plants); communications (broadcast and cable); and social assets (hospitals and schools).

"The majority of the opportunities will be economic infrastructure like transportation, energy, utilities and some communications assets," said Dan Bastasic, co-manager of the new Mackenzie infrastructure fund. "What you are seeing is a general trend of governments not wanting to [spend money on] infrastructure expenditures, and they are looking for private partners," he said, noting that infrastructure firms can benefit from the trend.

Aging baby boomers are also looking for sources of steady income - which infrastructure can provide - now that Ottawa plans to tax income trusts, and major dividend-paying companies such as BCE Inc. have been taken out, he said.

That's why the Mackenzie fund, whose portfolio will include dividend-paying stocks and income trusts, will have a monthly distribution.

CIBC World Markets Inc. economist Benjamin Tal said that he believes that infrastructure is emerging as an "attractive asset class."

"It's just a solid, less volatile investment," Mr. Tal said. "There is a demand by retail investors that would like to own - instead of a GIC - something better, but not too risky."

In fact, global infrastructure indexes have outperformed global equities indexes at almost any point during the past five years, Mr. Tal noted.

With only 15 per cent of infrastructure companies worldwide listed on stock markets, he expects this number to rise sharply"Many of the infrastructure facilities in Canada will come to the end of their life in 10 to 20 years," he said. "We are proud of our ability to eliminate our fiscal deficit, but in the process we have what I call an infrastructure deficit of about $60-billion that is rising about $2-billion a year."

Mark Chaput, co-manager of Investors Global InfrastructureClass, said the infrastructure problem is growing. "In the United States, a 2006 study by the American Society of Engineers evaluated the country's infrastructure with an overall grade of D," he said. "In China and India, rapid growth will place enormous pressure on their existing infrastructure."

Mark Chow, a Morningstar Canada fund analyst, said he believes it is a "good idea" for investors to have about 5 per cent of their portfolios in infrastructure as a diversification move. "If you are in a Canadian [stock] fund, basically you have a lot of natural resources and financials," he said.

Still, Raynor Burke, fund analyst at National Bank Financial Inc., cautioned about expectations for the sector given that infrastructure has been bid up by private equity and other institutional investors, and looks "fairly valued."

"Investors should be aware of the fact that this has been a very hot area for several years," Mr. Burke said.

Infrastructure plays

publicly listed in Canada

Macquarie Power & Infrastructure Income Fund (MPT.UN-TSX):

The income trust managed by the Toronto unit of Australia-based Macquarie Bank Ltd. focuses mainly on power infrastructure in North America. It owns a gas-fired co-generation plant and a stake in nursing home operator Leisureworld Senior Care LP.

Sentry Select Lazard Global Listed Infrastructure Fund (GLS.UN-TSX):

The closed-end fund is run by Australia-based Lazard Asset Management LLC for Toronto-based Sentry Select Capital Corp. It is invested in publicly listed global infrastructure companies, including Spanish-based Cintra SA, which owns a stake in Highway 407 in Ontario.

Capvest Income Corp. (CSV-TSX-VEN):

The investment corporation run by Toronto-based Sentry Select Capital Corp. formerly invested in trusts and commodity futures. It changed its mandate in March to invest directly or indirectly in infrastructure and energy.

Infrastructure stocks and trusts in Canada

Emera Inc., Enbridge Income Fund, Fortis Inc., TransAlta Corp., TransCanada Corp., Aecon Group Inc., SNC-Lavalin Group Inc., Brookfield Asset Management Inc.

© 2007 The Globe and Mail. All rights reserved.

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