Four Water ETFs That Could Help Matt Damon's Cause

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During a 10-day trip to Africa organized by his buddy Bono's ONE Campaign, Hollywood heartthrob Matt Damon accompanied a 14-year-old Zambian girl on an hourlong trek to fetch water for her family. People magazine's Sexiest Man Alive for 2007 thought: this girl will never attend school and realize her dreams of becoming a nurse if she has to struggle everyday for something so basic.

So Damon started a nonprofit organization on the credo that everyone in the world should have access to clean water and a toilet within the actor's lifetime. Co-founded in 2009 with Gary White, a leading expert in water and sanitation, Water.org provides money to partners in developing countries to dig wells, install toilets and develop various water projects.

"When you see people living without clean water and forced to scavenge for water and basically use up all of their time just doing that -- just basically trying to survive to the next day -- you realize they're in such a crippling cycle of poverty they can't possibly get out of," Damon said in an interview posted on water.org .

The organization has worked in hundreds of villages in Africa, South Asia and Central America, the website says.

Rising Tide Of Global Demand

The Oscar-winning actor has his work cut out for him. With the world's population expected to grow by nearly a third to as many as 9 billion over the next four decades, a rising tide of demand for a finite resource means unquenchable thirst for technologies that purify, recycle, irrigate, pump and transport water.

The consumer market, 10% of total demand, is just the tip of the iceberg. All industries from natgas to timber require oceans of fresh water to produce goods. Agriculture accounts for 70% of global water use.

The market for salt removal and wastewater recycling technologies is projected to grow by 11% over the next five years to total $12 billion by 2025, according to Global Water Intelligence .

Corporate spending on water technology will grow at a compound annual rate of 6.7% between 2011 and 2020, totaling $6 billion, GWI forecasts. Spending in China, India and Brazil is seen growing at a double-digit pace.

"The U.S.-produced water market is set to grow from $5 billion in 2010 to $10 billion in 2025, at 5% annually," GWI stated in a 2011 report . "Within this sector, the produced-water-treatment equipment market will grow from $693 million in 2010 to $3 billion, an annual growth rate of 10%, and the desalination technologies market, currently worth $59 million, will enjoy the fastest growth rate, averaging 20% per year."

Some 27% of urban dwellers in developing countries don't have running water in their homes, according to UN-Water .

Global food demand is projected to jump 70% by 2050, raising demand for agricultural water by nearly 20%.

The Four Water ETFs

Investors inspired by Damon's cause might consider four water ETFs that invest in utilities or companies developing products to conserve or purify water:

1.First Trust ISE Water ETF ( FIW ), returned 27% in 2013 vs. 32% for SPDR S&P 500 ( SPY ) and 21% for iShares MSCI EAFE Index ( EFA ), tracking developed foreign markets.

2.Guggenheim S&P Global Water ( CGW ), up 26% in 2013.

3.PowerShares Global Water Portfolio ( PIO ), up 30% in 2013.

4.PowerShares Water Resources (PHO), up 27% in 2013.

PHO, with $987 million in assets, is the most popular among the four. It charges a 0.62% annual expense ratio. The top 10 holdings, among 29, and their percentage portfolio weightings are:

1.Waters (WAT) 7.9%

2.Pentair (PNR) 8.5%

3.Flowserve (FLS) 8.5%

4.Roper Industries (ROP) 8.3%

5.Xylem (XYL) 7.8%

6.Lindsay (LNN) 4.2%

7.Mueller Water Products (MWA) 4.2%

8.Valmont Industries (VMI) 4.0%

9.Pall (PLL) 4.0%

10.Tetra Tech (TTEK) 3.8%

Blue Chip Water Stocks

Waters makes instruments to analyze liquids, chemicals and other materials. S&P Capital IQ projects it will grow sales by 6% in 2014 to nearly $2 billion after weak sales the past two years.

Pentair makes devices to transport, store and treat water globally for the consumer and industrial markets. It doubled in size after merging with Tyco Flow in 2012. It's aiming to grow sales at a compound annual growth rate of 4% and earnings at a rate of least 25% a year from 2012 through 2015.

"Pentair has identified a target market of $60 billion for U.S. water infrastructure investment needs," S&P Capital IQ stated in a research note Jan. 4. "The AmericanWaterWorks Association forecasts that the cost to replace deteriorating water pipes will more than double to nearly $30 billion annually by the 2040s. In June 2013, an EPA survey projected total investments for U.S. drinking water system repairs and improvements of $384 billion through 2030."

"Pentair notes that 50% of new home construction in the U.S. is not connected to a municipal water or wastewater network," the report added.

Flowserve produces industrial pumps and equipment for the chemical and energy industries. It's expected to grow sales by mid-single digits in 2014.

"Strength in Asia/Pacific, North America and the Middle East in the oil & gas, power and chemicals markets will lead to an improved long-cycle business," S&P Capital IQ wrote in a note. "We see further aftermarket demand, with larger OEM (original-equipment manufacturers) projects picking up some time in 2014."

Xylem spun off from ITT Corp. in 2011. It produces equipment to transport, treat, test, process and irrigate water along with building services for the consumer, industrial and agricultural markets.

"We look for demand to pick up modestly during 2014, but industrial treatment products and services for public utilities should remain soft in the U.S. and southern Europe," S&P Capital IQ stated in a report. "U.S. commercial and agricultural markets should recover somewhat, while infrastructure investments continue to strengthen in China and parts of Europe."

Pall makes filters for the health care, food and beverage, and other industries. Sales are seen growing 4% in 2014. The company plans to buy back $250 million of its stock in fiscal year 2014.

"Pall noted that its three-year industrial goals include a better focus on higher-growth end markets such as energy and in-plant manufacturing, and revenue growth above that of global GDP, driven by consumables and systems rationalization," S&P Capital IQ wrote.

Follow Trang Ho on Twitter @IBD_THo .



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



This article appears in: Investing , ETFs

Referenced Stocks: CGW , EFA , FIW , PIO , SPY

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