WHILE THERE'S NO EQUAL

to the human cost suffered by the victims of Hurricane Katrina, one can't help but be awed and sickened by how much physical damage was wrought.

After all the debris, sewage, waste and wreckage is cleaned up, a good chunk of the $100 billion rebuilding effort will go toward the region's infrastructure, much of which was demolished in the hurricane and subsequent flooding.

Infrastructure businesses are the skeletons of economic activity, the essential things we use everyday but don't think much about. Generally, they're assets where a natural or near-natural monopoly exists, such as a toll road or power grid. Parking lots, water utilities, roads and airports, even cellphone towers are all considered infrastructure assets.

The appeal of infrastructure investment is obvious. High barriers to entry make direct competition difficult to impossible. Imagine the cost of building a new airport to compete with an existing one. Plus, the assets are all physical and localized you can't outsource a toll road to India, or use the Internet to offer cut-rate pricing on a gas pipeline. This makes infrastructure assets much less susceptible to the natural competition faced in almost every other industry.

Because infrastructure assets are economic necessities, have highly predictable revenue streams and require huge capital expenditures to build, they can provide excellent long-term income with reasonably low volatility. Although infrastructure assets are usually highly regulated, user fees for businesses such as toll roads or airport parking can be raised, making the asset class comparatively well-insulated from inflation.

In recent years, in almost every country besides the U.S., there has been a trend of government privatization of big-ticket infrastructure assets. In the U.S., however, most infrastructure assets are still owned by government-related entities. LaGuardia Airport, for example, is owned and operated by the Port Authority of New York and New Jersey. In contrast, Auckland Airport, New Zealand's largest, is owned by a public company that's actively traded on the New Zealand stock exchange. American investors, therefore, are relatively unaccustomed to the notion that, from toll roads to hydroelectric dams, large infrastructure assets can be attractive investment vehicles.

The international leader in infrastructure investments is Macquarie Bank, a fast-growing, $10 billion Australian company that has almost single-handedly spearheaded a major market expansion of infrastructure as an asset class. Typically, Macquarie buys a collection of infrastructure investments, bundles them into a fund, and sells them to yield-hungry investors anxious for predictable dividends and stable returns.

A few examples of its funds include the A$7.1 billion Macquarie Infrastructure Group (ASX: MIG), one of the largest private developers of toll roads in the world with 12 of them across six countries. Macquarie Airports (ASX: MAP), also listed in Australia, owns interests in airports in Sydney (Australia), Rome (Italy), Copenhagen (Denmark), Birmingham and Bristol (both U.K.). Macquarie Communications (ASX: MCG) invests in communications infrastructure such as satellites, broadcast and wireless towers. Shares have risen more than 50% during the past 12 months.

Unfortunately, the vast majority of the firm's infrastructure funds trade only in Australia, making them essentially unavailable for U.S. investors. Only three of the bank's vehicles are directly listed in the U.S. Despite the recently renewed strength in U.S. equity markets, savvy traders especially those focused on income might consider including them as part of a diversified, global portfolio.

When we first profiled the Macquarie/First Trust Global Infrastructure/Utilities Dividend and Income fundlast fall, the fund traded at a cavernous 12% discount to its underlying net-asset value. Since that time, the discount has been cut to around 8%, with shares rising some 20%.

True to its name, the fund invests primarily in utilities and pipelines, both of which have been exceptionally strong amid an environment of rising energy prices. Foreign assets are emphasized, with less than 10% of the fund's holdings domiciled in the U.S. Many holdings, such as the U.K.'s AWG plc and Kelda Group plc, are unavailable to U.S. investors as American depositary receipts.

Also benefiting the portfolio: a 26% allocation to senior secured loans, an asset class in which I re-established positions last July, along with Canadian income trusts like Northland Power Income fund and the Consumer's Waterheater Income fund (TSX: CWI.UN), which have responded favorably to higher commodity prices. At a recent $23.21, the fund sports a yield of 5.69%.

Sound (Infra)Structure

For a true pure-play on infrastructure assets, U.S. investors should consider Macquarie Infrastructure, a trust that owns a diversified group of infrastructure businesses world-wide. Launched in December 2004, the company pays quarterly dividends and currently sports a yield of 7.08%. Like other infrastructure assets, MIC tends to be uncorrelated to major U.S. stock indexes, making it an ideal diversification for portfolios heavy on equities and short on income.

Among the company's assets are a 50% interest in Yorkshire Link, a 19-mile highway in England, and Macquarie Parking, which, with more than 32,000 spaces, is the largest provider of off-airport parking in the U.S. Other holdings include Thermal Chicago, which operates the country's largest district cooling system, a British water utility and a position in the aforementioned Macquarie Communications Infrastructure Group, which owns 600 transmission sites located across Australia. Still expanding, the company announced plans last month to acquire 100% of Hawaii Gas Utility, the island's only full-service gas energy company, for $238 million.

The Macquarie Global Infrastructure Total Return fund, a newly organized closed-end fund trading on the New York Stock Exchange, came public less than a month ago. According to the prospectus, the majority of the fund's assets are to be invested in the publicly traded securities of global infrastructure assets, with up to 15% of assets being pledged to unlisted infrastructure securities. In an effort to increase total return, the fund can also write call options against existing positions to generate premium income, a strategy that has worked well in recent, relatively trendless markets.

I'm bullish on infrastructure. But given the fact that MGU hasn't yet disclosed its portfolio or dividend, I'd call this one to watch rather than one to run out and buy. ETFconnect.com, run by Nuveen Investments, remains the web's best source for detailed information on closed-end funds.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC. At the time of writing, Hoenig's fund held positions in some of the securities mentioned in this article.