Josh Duitz  Portfolio Manager Alpine Global Infrastructure (AIFRX)

Comments & Outlook

The latest economic data indicate that global economic growth is slowing. The end of the second round of quantitative easing could negatively impact the US economy, and inflation is a risk in emerging markets. However, some emerging-market countries may cease raising interest rates, which could lead to a rally in these markets in the third or fourth quarter. Nonetheless, we remain cautious and continue to monitor the data.

Recommended Strategies

In an uncertain economic environment, investors should choose companies that sport a low beta, steady cash flows and earnings that were resilient during the financial crisis. The owners of global infrastructure have all of these characteristics. We have allocated 35 percent of our fund’s investable assets to emerging markets. But Brazil is our favorite emerging market because the country must build significant amounts of new infrastructure for the 2014 World Cup and the 2016 Olympic Games.

What to Buy Now

Brazilian toll-road operator CCR (Brazil: CCRO3) has seen traffic grow by 9 percent in the first four months of 2011 alone. Many investors are concerned about inflation in emerging markets, but CCR’s toll roads are protected against inflation; the company will raise its tariff by an estimated 10 to 11 percent on July 1. Our forecast calls for the company’s earnings to grow by 20 percent each year for the next several years, driven by increased traffic and rising tariffs.

The best global infrastructure companies own concessions and build new projects. If a company can operate and build infrastructure assets it has a competitive advantage when it bids for projects. Mexico’s Empresas ICA (NYSE: ICA) operates road concessions such as highways tunnels and bridges. The company owns 19 concessions, 10 of which are under construction. These projects should boost profits as they come online and we expect the company to grow earnings by more than 20 percent annually for the next few years.

Netherlands-based Koninklijke Vopak (Netherlands: VPK) is the world’s largest bulk liquid storage company, serving the oil and chemicals industries. The occupancy rate for the company’s facilities was 92 percent in the first quarter; Vopak faces limited competition at the infrastructure facilities it serves. The company’s contracts also feature indexation clauses that allow it to raise prices with inflation.

Bob Worthington President Hatteras Funds

Comments & Outlook

The global economy is in recovery, but lingering issues will result in high volatility and likely dampen returns for the next year or two. The European sovereign debt crisis has yet to fully play out. It’s only a matter of time before Greece will default on its debt obligations, which could lead to problems in peripheral European economies.

The US economy is experiencing a housing depression amid relatively high unemployment. Although the US isn’t as indebted as some European countries, our current debt levels are unsustainable.

Citizens in emerging markets have benefited tremendously from continued urbanization and rising incomes, but these trends will also exert long-term pressure on commodity prices. All of these factors will result in continued volatility for the next one to two years.

Recommended Strategies

Never put all your eggs in one basket. Investors should be cautious when diverting funds to fixed-income products with moderate to long durations. These are likely unwise investments at this time, unless you are confident the economy will dip into another recession. Investors should increase their exposure to commodities but maintain a long time horizon for these investments.

Investors should also reduce their exposure to long-only stocks and bonds and boost their allocation to alternative investment vehicles such as an alpha fund or a fund of funds that invests with hedge funds.

Hedge funds were battered in 2008, and their reputation has suffered after a series of financial scandals. However, if you had invested $1 million in the S&P 500 from the start of 1999 through the end of 2010, you would have received $1.27 million with a standard deviation of 16. The same amount invested in the HFRI Fund of Funds Composite Index, a benchmark of hedge fund performance, would have brought in $1.97 million with a standard deviation of 6.

What to Buy Now

We aren’t stock pickers. Instead we invest with hedge fund managers through a fund-of-funds structure. But our managers have invested in these companies.

Alcatel-Lucent (NYSE: ALU) is a play on rising global demand for technology. The company has addressed many of the issues related to its merger, but its shares still trade at a relatively low valuation. The investment case for Wal-Mart Stores (NYSE: WMT) is also predicated on the company’s attractive valuation.