Tap Water With These ETFs

As water plays a major role in the evolution of economy and human life, let’s dedicate Mar 22 to safe and sufficient water. The conservation and purification of water used in homes, businesses, and industries have become an investment theme.  

This is especially true as the gap between water demand and supply has been growing rapidly. According to the 2020 United Nations Water Resources Development Report, entitled "Water and Climate Change," global water use has grown six fold in the last 100 years, and continues to increase at a constant rate of 1% per year, mainly due to economic development, population growth, and changes in consumption patterns.

The Organization for Economic Co-operation and Development (OECD) expects worldwide water demand to increase by 55% between now and the year 2050 while the United Nations forecasts water use to increase by 85% by 2035 due to energy demand (read: Energy ETFs Soar On Reopening Hopes).

On the other hand, water scarcity has been rising with climate change, pollution, poor sanitation, an ever-expanding population, and increasing consumption. Wastewater runoff from agriculture, industry and expanding cities, especially in developing nations, is another major issue. Per the United Nations estimates, about 2.2 billion people lack access to drinking water and 4.2 billion lack a proper sanitation system. The agency estimates that nearly two-thirds of the planet could experience water shortage in the next few years. Per the World Health Organization, one billion people lack access to drinking water and 3-4 billion cannot rely on a sufficient or dependable water supply.

Though about 80% of our planet is covered by water, only 1% can be used for drinking. With clean water becoming an increasingly scarce resource, water is more valuable than it’s been in decades. Thus, the number of companies and government across the globe has increased their spending on water and wastewater treatment equipment. The U.S. government is investing heavily in water infrastructure with new technologies to extract, purify, discover and deliver water. PricewaterhouseCoopers estimates that private spending on drinking water infrastructure will reach $60 billion by 2027. Over the next 25 years, total spending on wastewater treatment alone will exceed $10 billion per year.

As a result, there is huge room for innovation and growth in the water sector. In fact, the companies begin to launch “digital water” platforms to increase water quality, monitor water usage, control costs and expand reach. According to Bluefield Research, total expenditures on digital water hardware, software and services will reach $10.8 billion in 2030 from $5.4 billion in 2019 (read: Time to Buy These Undervalued Tech ETFs on the Dip?).

Scarcity and the ongoing investments to secure water pave the way for future growth, resulting in the entry of this precious commodity in the Wall Street markets in December just like oil or gold. Given this, the water industry seems an excellent investment option to tap the growth. We have highlighted some ETFs that could be excellent picks.

Invesco Water Resources ETF PHO

This fund provides exposure to U.S. water utility stocks that create products to conserve and purify water for homes, businesses and industries. It tracks the Nasdaq OMX US Water index and holds 38 securities in the basket. The fund has amassed $1.6 billion in AUM and charges 60 bps a year in fees per year.

First Trust Water ETF FIW

This ETF follows the ISE Clean Edge Water Index, which is a modified market capitalization-weighted index comprising exchange-listed companies that derive a substantial portion of their revenues from the potable and wastewater industry. Holding 37 stocks, it has amassed $889.7 million in its asset base while charging investors 55 bps in annual fees (see: all the Industrials ETFs here).

Invesco S&P Global Water Index ETF CGW

This ETF provides global exposure to developed market securities including water utilities, infrastructure, equipment, instruments and materials by tracking the S&P Global Water Index. It holds 59 stocks in its basket with AUM of $878.6 million and expense ratio of 0.59%.

Invesco Global Water ETF PIO

This fund tracks the Nasdaq OMX Global Water Index, holding 51 stocks in its basket. It has accumulated $272.1 million in its asset base while charges 75 bps in annual fees.

Ecofin Global Water ESG Fund EBLU

This fund follows the Ecofin Global Water ESG Net Total Return Index, which comprises companies across the globe and throughout the water cycle that seems positioned to benefit from the pursuit of solving the water supply/demand imbalance. It holds 46 stocks in its basket and has gathered $33 million in its asset base. The fund charges 40 bps in annual fees.

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

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