World Water Day was actually celebrated last Friday, but 2013
is, in some circles, being dubbed the year of international water
cooperation. It is not surprising that more attention is being
paid to water infrastructure and the water investment thesis.
Last week, the American Society of Civil Engineers released a
report in which graded the U.S. water infrastructure system "D,"
up only slightly from the "D-" the organization levied a few
"The ASCE's Failure to Act series (2011-2013),
water/wastewater infrastructure needs are estimated at $126
billion by 2020, but funding is projected at only $42 billion,
leaving a gap of $84 billion," according to S&P Capital IQ.
"There are estimated to be between 700,000 and 800,000 miles of
public sewer mains in the U.S., and over one million miles of
drinking water systems, with many of these pipes well over 100
years old, meaning they are either past or nearing the end of
their useful life."
Escalating water needs in the U.S. and throughout the world
could spell opportunities in this sub-sector for investors, and
there are several
with which to play that trend. However, S&P Capital IQ is
tepid on these funds.
The research firm has an Underweight rating on the Guggenheim
S&P Global Water Index Fund (NYSE:
). CGW carries an overall Underweight ETF ranking, largely
reflecting an Underweight ranking for performance analytics, said
CGW is home to 51 stocks and $228.6 million in assets under
management. The ETF does make good on the implication that it is
a global fund as U.S.-based companies represent just 37.5 percent
of the ETF's weight. The U.K. accounts for 19 percent of CGW's
country weight with Switzerland garnering an allocation of just
over eight percent. CGW is up about seven percent year-to-date
and carries a beta of 0.89 against the S&P 500,
according to Guggenheim data
S&P Capital IQ is a bit more enthusiastic about the First
Trust ISE Water Index Fund (NYSE:
), which it rates Marketweight. The $108 million ETF is home to
37 stocks with top holdings including Flowserve (NYSE:
) and Pall (NYSE:
FIW's median market cap is just over $2.2 billion, implying a
bit of a small-cap bias, but that has worked in favor of the ETF
this year as it is up more than 10 percent. The rub is that FIW
has a beta of 1.12 and a three-year standard deviation that is
nearly 300 basis points higher than that of the Russell 3000
according to First Trust data
S&P also has a Marketweight rating on the PowerShares
Water Resources Portfolio (NYSE:
), by far the largest water ETF with nearly $925 million in
assets. Only 3.6 percent of PHO's lineup is devoted to large-caps
with small-caps accounting for over 43 percent. PHO, which
celebrate its eighth birthday later this year, is up about 11
While the ratings on these ETFs are not jaw-dropping, S&P
does point out some favorable long-term trends.
"Meanwhile, the cost of water continues to rise, as
budget-strapped municipalities pass the costs for upgrades and
repairs on to consumers," said the research firm. "However, water
reuse is growing in popularity for irrigation and other uses that
don't really require the same costly treatment as for potable
water. More municipalities are seeking reuse and desalination
projects, as technology continues to become more cost efficient.
Thus, we think long-term prospects are very favorable for flow
control and filtration related water treatment companies."
The $210 million The PowerShares Global Water Portfolio (NYSE:
) was not mentioned in the S&P note. At the country level,
PIO is somewhat comparable to CGW, the aforementioned Guggenheim
ETF. PIO allocates a little more than 40 percent of its weight to
U.S. stocks with the U.K. and France combining for more than 31
percent of the fund's weight.
PIO was up 6.6 percent year-to-date heading into Monday's
session. The ETF is more expensive than its domestic counterpart
with annual fees of 0.75 percent compared to 0.62 percent for
For more on ETFs, click
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