What do Foreign Infrastructure Funds have to Offer?

Infrastructure funds offer you the opportunity to invest in the development of critical services and public utilities. Infrastructure funds were first popularized following the Vietnam and Korean Wars when Americans wanted to help redevelop certain nations. Investment into Asia quickly followed. Today, emerging economies offer the largest opportunities for American investors to invest in foreign infrastructure. These funds can be socially responsible and profitable. However, the investments come with great risks.

Socially Responsible Investing

Many individuals considering foreign infrastructure funds would like to take part in the development of critical services in emerging markets. African and Middle-Eastern nations have taken the lead in encouraging this type of investment. In fact, micro-loans, financing agreements that assist small business owners in providing an important service to a community, started in emerging markets. If you are passionate about socially-responsible investing, emerging market funds may be a great option for your funds. With infrastructure development, you can be certain you are investing in lasting change, such as the development of electrical grids, plumbing and water purifying plants, highways and even cell phone towers. Ultimately, your dollars are doing "good" for a group of people or a community, and your changes will last over time.

Recession-Proof Investing

Another major advantage in considering foreign infrastructure funds is relatively recession-proof investing. While manufacturing investments rise and fall with the changing market tides, infrastructure is a basic necessity that does not trend out during a recession. If your investment fund is successful, you can look forward to many years of constant returns in the future. Infrastructure companies can operate at a relatively low interest coverage rate as a result. This gives the fund plenty of room to leverage assets for expansion. The companies can count on the consistent returns of developed projects in any market, allowing them to take large loans and put their assets to work.

Currency Exchange

One of the key problems with foreign infrastructure investment is the issue of currency exchange. While simply trading in a dollar for another currency is fairly easy, doing so at the most favorable exchange rate can be challenging. This will affect the timeliness of your investments. Further, getting large sums of money outside of the country became more difficult after the Patriot Act. If you plan on investing in foreign infrastructure funds, be prepared for a large amount of oversight into your activities, including your reported taxable income, on an annual basis. 

Emerging Market Economies

A further challenge with foreign infrastructure investment is the volatility of many emerging markets. Investing in developed countries will present you with more stability, but the chance for profit is lower. On the other hand, investing in emerging markets exposes you to the uncertainty of these economies. This can quickly cause you to lose the benefits of infrastructure development, which is often chosen for its low risk profile. You may be facing an investment that is just as risky as a foreign currency investment or a commodities contract. Ultimately, the political swings in an emerging economy can be fast and drastic, causing serious losses to even a well-planned project. 

blog comments powered by Disqus
Scottrade