While many investors focus in on commodities such as gold or
oil, some continue to overlook the most important resource of all;
fresh water. In fact, fresh water accounts for just 3% of all the
water on Earth while surface water makes up just 0.3% of that
Thanks to this already small supply, and the ever expanding world
population, water is becoming increasingly scarce across many parts
of the world. This is forcing companies and governments to come up
with new ways to recycle, manage, and desalinate water resources in
order to prevent catastrophe in the near future.
This will be an especially big problem given the rising populations
in much of the emerging world. Close to two billion more people
will be on the planet by 2050 and the vast majority will reside in
developing nations. Given that these countries already have
significant water shortages and problems, it will be crucial for
them to find new water resources to stop growth from slowing, or
Three Overlooked Emerging Market ETFs
As a result, a huge buildup in water infrastructure is already
beginning to take place, not just in developing nations but in some
of the more water scarce regions of the industrialized countries as
well. However, due to higher levels of population growth and less
water resources in much of the third world, the vast majority of
spending looks to take place in this region, suggesting that water
investing could be an important growth industry.
Water infrastructure spending is approaching $80 billion a year
right now and looks to double over the next two decades according
World Water Council
. With this build up and the 'wide moat' principles of firms in the
treatment, production, and water development spaces, now could be
the time to make an investment in the sector (read
Three Low Beta Sector ETFs
For investors looking to play this trend globally and across
sectors, there are several water ETFs which could be of service.
While they may appear similar at first glance, investors should
note some of the key differences between the funds in this emerging
space which we have highlighted below:
First Trust ISE Water ETF (
This ETF looks to follow the ISE Water Index which is a benchmark
of firms that derive a substantial portion of their revenues from
the potable and wastewater industries. To be included, a stock must
meet certain market cap, liquidity and concentration requirements,
although a basket of 36 companies are chosen in the end (read
Three Unlucky Equity ETFs
Currently, the fund charges investors 60 basis points a year and
sees light volume of about 18,000 shares a day despite having about
$70 million in AUM. The portfolio is well spread out across market
cap levels with micro caps and mid caps each comprising about
one-third of the total exposure. Despite this focus on smaller
securities, growth makes up just under one-fourth of total assets.
In terms of sectors, industrial companies make up about two-thirds
of the total, while utilities comprise roughly 25% of the fund. Top
individual holdings include
Veolia Environment (
Mueller Water Products (
which each make up about 5% of the fund.
Guggenheim S&P Global Water Fund (
Guggenheim's entrant in the space is CGW, a fund that tracks the
S&P Global Water Index. The benchmark focuses on companies that
derive a significant component of their business from water related
activities. The product holds about 52 securities in its basket and
charges 70 basis points a year in fees (see more at the
Mid caps dominate this product at just over 64% of the total,
although small and large cap firms account for another 30%
combined. In terms of style, blend securities receive a plurality
but there is a nice mix between value and growth as well. Thanks to
this, the fund does pay out a decent dividend, which is now
However, investors should note that the fund is heavily
concentrated in European equities as these securities make up about
half of the total portfolio. Although, it should be noted that the
U.S. still makes up the top spot (38%), it is trailed by British
(20%), and Swiss (10%) stocks, rounding out the top three.
PowerShares Global Water Portfolio (
For a global play on the sector from PowerShares, investors have
PIO. The product tracks the Nasdaq OMX US Global Water Index, which
is a modified equal-weighted index that has a focus on firms in the
global water industry. The fund is quite popular with investors,
amassing nearly a quarter of a billion dollars and trading about
80,000 shares a day despite having an expense ratio of 75 basis
points a year.
Like other products on this list, PIO has a heavy focus on mid
caps, as this segment makes up nearly 70% of the total exposure.
Small caps are then the only other segment to make up double
digits, accounting for 17% of the fund. Blend securities are also
popular with this fund, as they account for 44% of the total
exposure in the PowerShares product.
This fund does have a pretty good balance between utilities and
industrials though, as each accounts for about 41% of the total.
The remainder is split among healthcare, technology, and basic
materials, but the 80% focus on the two big sectors should ensure a
more balanced approach than some of the other products in the
PowerShares Water Resources Portfolio (
For a U.S. centric play on the water market, investors should look
at PHO. The product follows the Nasdaq OMX US Water index, which
like its international counterpart, utilizes a modified
equal-weight methodology to determine exposure. However, this fund
has about 30 securities in the basket and charges investors 66
basis points a year in fees (also see
ETFs vs. Mutual Funds
This strategy has apparently been very popular with investors as
this product crushes all others on the list in terms of volume and
assets under management. PHO has close to $900 million in AUM and
sees volume of nearly 225,000 shares a day, suggesting relatively
tight bid ask spreads for the product. However, investors should
also note that industrials comprise about 60% of the fund while
utilities take up another 25%.
This ensures that the fund has a lower yield than many on the list
but could be more prone to growth. The fund also has a heavy focus
on U.S. securities as these companies constitute 90% of the total,
far more than any of the others on the list. Interestingly, mid
caps still receive the most from a cap perspective, but small and
micro caps, when combined, account for nearly 56% of the total as
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click To get this free report
To read this article on Zacks.com click here.