A New Smart-Beta Water ETF


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Elevation ETF Trust has come out with the first smart-beta, water sector-specific exchange traded fund that will select components based on factors like risk-to-return and yields.

The new Summit Water Infrastructure Multifactor Exchange Traded Fund (NYSEArca: WTRX) began trading on Wednesday. WTRX has a 0.80% expense ratio.

WTRX will try to reflect the performance of the Summit Zacks Global Water Index, which follows 30 to 50 companies engaged in the global water industry. Specifically, the underlying index will utilize a rules-based indexing methodology to incorporate fundamental factors that have been strong historical indicators of the long-term performance of water equities.

"As opposed to passive water indices that are constructed through various measures of market capitalization, equities are selected for inclusion in the Index by a proprietary formula of relevant company fundamentals including measures of price/earnings, intrinsic value, and return on capital,"Matt Dickerson , CEO of Summit Water Capital Advisors, said in a press release. "Through this methodology, the Index targets a more balanced and representative exposure to the global water industry that encompasses several world markets and broader capitalization levels, as opposed to a less-diversified basket of the largest, most expensive stocks."

To be included in the underlying benchmark, companies have to be listed on a global stock exchange, have a market capitalization of no less than $200 million and have a three-month average daily trading value greater than $400,000.

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The index also uses a ranking and weighting methodology designed to identify stocks that primarily derive their revenue from water-related business activities and provide the greatest potential in terms of yield and risk/return.

Component holdings will include those engaged in water-related businesses, such as delivering water-related products or services in the industrials, utilities and energy sectors, which include the following: water-related pumps, pipes, valves, filtration, treatment, storage, water rights, chemicals, delivery (utilities), desalinization, ultra-purification (in the manufacturing process or medical equipment), ballast water (ship water treatment), plumbing, water efficiency and metering.

Top holdings include EnerCare 5.7%, GWA Group 5.4%, Polypipe Group 5.0% Hyflux 4.5% and ANDRITZ AG 4.5%. About 35% of the portfolio will be allocated toward water utilities and 65% will lean toward water industrials segment.

Furthermore, the underlying index selects components based on three factors. For water utilities, the smart-beta methodology selects holdings based on low price-to-earnings ratios, low EV/EBITDA and high return on equity. For water industrials, the index targets those with low P/E, high gross margin and high return on invested capital.

SEE MORE: Water ETFs Are Making a Big Splash

WTRX will be competing against four other water-related ETFs on the market. The First Trust ISE Water ETF (NYSEArca: FIW ) and PowerShares Water Resources Portfolio (NYSEArca: PHO ) both track U.S. companies that derive their revenue from products that conserve and purify water. The Guggenheim S&P Global Water Fund (NYSEArca: CGW ) and PowerShares Global Water Portfolio (NYSEArca: PIO ) both track companies that are associated with global water utilities, infrastructure, equipment, instruments and materials.

For more information on new fund products, visit our new ETFs category .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article was provided by our partner Tom Lydon of etftrends.com.



This article appears in: Investing , ETFs


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