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Tickers in this Article: DBN, MXI, RTP, MT, DD, DOW, CAT, TEX
The word "infrastructure" is working its way into mainstream investing lingo and will likely someday be as common as the term commodities.

Even weekend-warrior investors will probably know that investing in infrastructure is a solid long-term play and should be a staple of any well-diversified portfolio. What they probably won't know, however, is how to make money on the impending spending boom in infrastructure around the globe.

The Options
There are a few paths investors can choose to take when entering the infrastructure area. You have the engineers that design the new projects, the construction firms that build the structures, the machinery companies that supply the heavy equipment, the companies that invest in the infrastructure, and last but certainly not least, the materials that go into expanding and updating the current infrastructure system.

If you believe in the long-term infrastructure play as I do, the best risk/reward ratio would be found in materials.

The only given is that each project, whether it is built in the United States or abroad, must have materials. The heavy-equipment sector as a whole has been amazing; however, we do not know if Caterpillar (NYSE:CAT) or Terex (NYSE:TEX) will receive the next big contract. The same can be said about the engineering firms; it is likely the entire sector will move higher, but certain companies will be left out when it comes to crunch time.

A Material World
Investors can choose to pick individual material stocks, or invest in the entire sector with exchange-traded funds (ETFs). There are a number of ETFs that concentrate on the materials sector, however, only two that give investors exposure to stocks outside America. It is imperative to invest money overseas because we live in a global economy and the demand for materials outside the United States exceeds that within our borders.

The iShares S&P Global Materials Index ETF (NYSE:MXI) and the WisdomTree International Basic Materials ETF (NYSE:DBN) are the two choices. Both ETFs have easily outperformed the market in the first half of 2007, and it does not appear the uptrend will end anytime soon. MXI gained 25% in the first six months of 2007 and DBN finished higher by 29%. Both ETFs outperformed the S&P 500 by at least four-times and were on pace for annualized gains of 50%.

MXI versus DBU
The performance, the top ten holdings, and the expense ratio (0.48% for MXI vs. 0.58% for DBN) are all similar between the two ETFs. However, there is one major difference - the country breakdown.

The country with the largest allocation in MXI is the United States, with 23% exposure. On the other hand, DBN has zero exposure to America. A large portion of the coming infrastructure growth will come from overseas, so it is not necessarily a bad thing to have no exposure to the U.S.

Realistically, America does not offer any top-rated material stocks that will be directly used in the building of infrastructure. The only U.S.-based holdings in the top ten of MXI are chemical stocks DuPont de Nemours (NYSE:DD) and Dow Chemical (NYSE:DOW).

After the 23% in U.S.-based stocks, MXI has 16% in the U.K. and 12% in Japan. The most heavily weighted countries in DBN are the U.K. and Australia, both with 21%. Germany and Japan also have large weightings of 17% and 16%, respectively. (To learn more, read An Inside Look At ETF Construction.)

Building The Foundation
Two stocks that fall into the top ten holdings of both ETFs are Arcelor Mittal (NYSE:MT) and Rio Tinto (NYSE:RTP). MT is based in the Netherlands and is the largest steel company in the world. Nearly every infrastructure project must have a foundation and a framework to keep it in place. Both steel and iron are commodities that are essential for these projects. The entire steel sector has been red hot, and MT has joined in the rally. In early 2007 the stock finally broke above its 2005 high and has since been off to the races.


RTP is more of a mining company; however, the iron ore and other commodities it extracts is used in the steel making process. About 20% of its sales come from coal (a product used in steel making) and most of the remaining sales are mining-related. RTP is composed of dual-listed sister companies in Australia and the U.K. Because RTP is one of the largest mining companies in the world, it is able to ship its products to countries everywhere. Though the one major bonus is its proximity to Southeast Asia and China, where growth is booming.

Materials for You
The type of investor you are (aggressive or conservative, short-term or long-term, and so on) will decide which material investment is right for you. That said, DBN offers investors immediate exposure to the top names in the materials sector with a reasonable expense ratio. The past performance has been amazing and without taking the company-specific risk I would have to give the nod to DBN.

For more insight, see 3 Steps To A Profitable ETF Portfolio.

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