Six Water ETFs to Consider as the Global Water Crisis Worsens

Earth is often referred to as the blue planet since more than 70% of its surface is covered with water. However, only 0.3% is usable by humans, and this percentage is further shrinking due to deforestation and natural factors such as floods, pollution of water bodies and wastage in distribution. The lines, “water, water everywhere and not a drop to drink” from a poem by Samuel Taylor Coleridge unfortunately depict the situation that some parts of the world are already experiencing.

It is estimated that almost two-thirds of the world’s population experience severe water scarcity for at least one month each year. It is further projected that half of the world’s population could be living in water-stressed areas by as early as 2025. According to WHO, around 829,000 people are estimated to die each year from diarrhea because of unsafe drinking water, sanitation and hand hygiene. 

According to a report by the American Society of Civil Engineers, an equivalent of $7.6 billion worth of treated water was lost due to leaky pipes in 2019, and this loss is projected to more than double by 2039, reaching $16.7 billion. The problem is worse in some countries where water loss is as high as 70%. An upgrade of the water infrastructure is much needed to save precious water and reduce the economic damage. In addition, steps to create adequate sewage and better wastewater treatment facilities as well as more efficient distribution of water will go a long way in solving the crisis. ETFs are a good way to get exposure to companies working in such areas.

Here’s a look at six exchange-traded funds (ETFs) that provide exposure to companies working to solve the water crisis.

1. Launched in 2005, Invesco Water Resources ETF (PHO) is based on the NASDAQ OMX US Water Index. The index is designed to track the performance of companies creating products that conserve and purify water for homes, businesses and industries that are listed on a U.S. exchange. The top five sector allocations are Machinery, Water Utilities, Life Science Tools and Services, Building Products and Chemicals. The fund has $1.98 billion as assets under management and an expense ratio of 0.60%. It has delivered 22.54% year-to-date returns.

• Danaher (DHR)
• Ecolab (ECL)
• Roper Technologies (ROP)
• American Water Works (AWK)
• Waters (WAT)
• Zurn Water Solutions (ZWS)
• A O Smith (AOS)
• Advanced Drainage Systems (WMS)
• Tetra Tech (TTEK)
• IDEX (IEX)

2. First Trust Water ETF (FIW) is the second-largest ETF in the space. FIW tracks the ISE Clean Edge Water Index. The index constitutes of companies that derive a substantial portion of their revenues from the potable and wastewater industry, including water distribution, infrastructure, water solutions and ancillary services. The ETF was launched in 2007 and currently has $1.47 billion as assets under management. It has posted 23.38% year-to-date returns.

• Tetra Tech (TTEK)
• IDEX (IEX)
• Danaher (DHR)
• Ecolab (ECL)
• Roper Technologies (ROP)
• Pentair (PNR)
• A O Smith (AOS)
• Essential Utilities (WTRG)
• Advanced Drainage Systems (WMS)
• American Water Works (AWK)

3. The next is the Invesco S&P Global Index ETF (CGW). The ETF tracks the S&P Global Water Index, thereby providing exposure to some of the most liquid and tradable 50 companies from around the world that are involved in water-related businesses. While 54% of the portfolio is U.S. dominated, the remaining is spread across nine countries with United Kingdom (15.9%), France (8.65%) and Switzerland (7.35%) having the highest representation. CGW has $1.2 billion as assets under management, an expense ratio of 0.57% and has delivered 23.03% year-to-date returns. The top ten stock holdings add to 54.55% allocation.

• American Water Works (AWK)
• Xylem (XYL)
• Halma (HALMY)
• Veolia Environment (VEOEY)
• Geberit (GBERY)
• Pentair (PNR)
• United Utilities (UUGRY)
• Essential Utilities (WTRG)
• Severn Trent (STRNY)
• Tetra Tech (TTEK)

4. Launched in 2007, Invesco Global Water ETF (PIO) tracks the Nasdaq OMX Global Water Index (Index). PIO invests at least 90% of its total assets in companies across the globe that create products designed to conserve and purify water for homes, businesses and industries. The ETF has a portfolio of 43 companies across geographies led by the U.S. followed by United Kingdom, Switzerland, Japan and others. The holdings are split between large and mid-caps. The ETF manages $341 million as assets under management and an expense ratio of 0.75%, and has posted 17.44% year-to-date returns.

• Danaher (DHR)
• Ecolab (ECL)
• Pentair (PNR)
• Ferguson (FERG)
• Geberit (GBERY)
• Roper Technologies (ROP)
• Veolia Environment (VEOEY)
• American Water Works (AWK)
• Xylem (XYL)
• Waters (WAT)

5. Launched in 2017, Ecofin Global Water ESG Fund (EBLU) replicates the Ecofin Global Water ESG Index, which comprises of companies that are materially engaged in the water infrastructure or water management industries. The index has a 57% representation by companies in North America, 37% in Europe and 8% from the Asia Pacific region. The ETF is comprised of companies that are “positioned to benefit from the pursuit of solving the water supply and demand imbalance.” EBLU has $64 million as assets under management and an expense ratio of 0.40%. The scheme has registered 19.93% year-to-date returns.

• Ferguson (FERG)
• Ecolab (ECL)
• Geberit (GBERY)
• American Water Works (AWK)
• Xylem (XYL)
• Veolia Environment (VEOEY)
• IDEX (IEX)
• Pentair (PNR)
• A O Smith (AOS)
• Essential Utilities (WTRG)

6. The Global X Clean Water ETF (AQWA) is the newest entrant in this space. AQWA was launched in April 2021 and tracks the Solactive Global Clean Water Industry Index. The ETF invests in companies advancing the provision of clean water through industrial water treatment, storage and distribution infrastructure, as well as purification and efficiency strategies, among other activities. AQWA has a portfolio of 40 holdings primarily from sectors like Industrials and Utilities. Around 60% of its assets are U.S. centric with around 19% in the UK, followed by smaller allocations other nations like France, Japan, Hong Kong, China, South Korea and Australia.

• Ecolab (ECL)
• American Water Works (AWK)
• Xylem (XYL)
• Pentair (PNR)
• Essential Utilities (WTRG)
• A O Smith (AOS)
• Suez (SZSAY)
• United Utilities (UUGRY)
• Severn Trent (STRNY)
• Advanced Drainage Systems (WMS)

Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in reporting are unintentional. Details on projects based on press releases and reports. The ETF specific information such as AUM, expense ratio, holdings is as on November 30, 2021. Year-to-date returns are as on December 1, 2021.

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

Other Topics

Companies