Water is one of the most plentiful compounds on Earth and it is essential for life.
However, fresh water isn’t nearly as common as salt water and it is under pressure. As climate change rapidly shifts the weather pattern, fresh water is drying up. At the same time, pollution, garbage and industrial waste are destroying existing water basins.
This year has been a record-breaking year for initial public offerings with companies going public via SPAC mergers, direct listings and standard IPOS. At Techlive this week, Jack Cassel of Nasdaq and A.J. Murphy of Standard Industries joined Willem Marx of The Wall Street Journal and Barron's Group to talk about companies and trends in Read More
This is especially true in some large, poor countries with desperate need for fresh water including India, China, Bangladesh and Mexico. Even in the US, the Colorado river which supplies fresh water to 40 million people in the Southwest is rapidly drying up. For that reason, water storage, infrastructure and purification has become a hot investment theme. These companies offer increasing shareholder value over the long term. See: How to Invest in Water like Dr. Michael Burry from The Big Short.
While the sector is still relatively small, there are several water ETFs which are particularly good at taking advantage of this trend.
PHO is one of the largest water ETFs with $750 million under management. It invests in 37 different companies that are mostly based or focused on the US market. The companies are generally mid-sized and the top 10 firms comprise 60% of the fund. American Water Works is one of the largest holdings. It is a water focused utility that provides water infrastructure to towns and cities. Roper Technologies is another large holding. It provides equipment and engineered solutions to companies like American Water Works. That includes industrial tubing, filtration systems, efficient controllers and other plumbing tools. PHO has increased 27% over the past year and about 5% in 2017.
2. Guggenheim S&P Global Water Index (GCW)
GCW has a more global perspective than PHO but still has 40% of its investments in the US and about 15% in the UK. The assets are deployed to 43 companies and is more diversified in company size as well. It invests in American Water Works to get traditional water utility exposure. However, it also invests in Geberit which is a Swiss sanitation equipment firm that produces bathroom and plumbing equipment that is more efficient than older alternatives. GCW has risen about 16% in the past year and 5% in 2017.
This water ETF serves as a proxy for the Nasdaq OMX Global Water Index. It simply copies all of the firms that are in this list and invests in them. However, the assets are concentrated to the largest firms, with the top ten accounting for over 50% of the assets. Ecolab is one interesting firm on the list. This Minnesota firm provides purification, hygiene and clean energy technologies around the world. Veolia is another well-known firm. The French firm is one of the largest global water utility, treatment and purification providers. The firm has around $14 billion in revenue annually spread throughout Europe, the Middle East and Asia primarily. PIO has grown almost 15% in the past year and about 5% in 2017.
4. First Trust ISE Water Index Fund (FIW)
FIW has a fairly large presence with almost $250 million in assets. The fund tries to match its assets in an index developed by First Trust called the ISE Water Index. The index attempts to portray the market’s valuation and outlook on the water industry. It is highly diversified with both big and large companies in a number of different sectors including sanitation, purification, treatment, industrials and utilities. FIW is up only about 2% over the last year and 8% in 2017.
5. Summit Water Infrastructure Multifactor Index (WTRX)
This small water ETF primarily focuses on the water infrastructure industry. It is based on the Zacks Global Water Index (ZAXWTRX). It has only about $4 million in assets so has yet to achieve critical mass. Large withdrawals or investments of assets could change the price of this water ETF even if the underlying do not change, so it is a bit risky. FIW has returned over 20% in the last year and 14% in 2017.