Water is one of the most coveted and widely used resources on the planet. Like other commodities such as oil and gold, water assets can significantly increase the diversification of any investment portfolio.
One way to get in touch with the water industry is through the Water Exchange Trading Fund (ETF). These ETFs invest in companies involved in water treatment and purification and their distribution. Some well-known names include Germany-based BASF SE (BAS.DE), 3M Co. (MMM) and ITT Inc. (ITT).
As an essential commodity, water ETFs are often used as defensive positions in investment portfolios. However, these ETFs may also be an important offensive tool in terms of water shortages becoming an increasingly serious threat. In addition, the industry will benefit from the US$1.2 trillion US Infrastructure Act passed by the US Congress in November 2021 and signed by President Biden (see below for details).
Compared with other types of ETFs, the scope of water ETFs is smaller, consisting of five funds traded in the United States, excluding inverse and leveraged ETFs, and ETFs with assets less than US$50 million. These ETFs do not invest in water or water rights as commodities, but instead focus on water resources companies. Some water ETFs have outperformed the Standard & Poor’s 500 Index, which has a tracked total return of 28.8% for the year ended December 7, 2021. Based on the performance of the past year, the best-performing water ETF is First Trust Water ETF (FIW).
We have checked the best three water ETFs below. All figures below are as of December 7, 2021.
- Over the past year, Water Exchange Traded Funds (ETFs) have outperformed the market.
- The water ETFs with the best one-year total return are FIW, CGW and PHO.
- The largest holdings of these ETFs are Tetra Tech Inc., American Water Works Co. Inc. and Ecolab Inc. respectively.
- One-year tracking total return: 33.6%
- Expense rate: 0.54%
- Annual dividend yield: 0.39%
- Three-month average daily volume: 88,683
- Assets under management: US$1.5 billion
- Date of Establishment: May 8, 2007
- Issuing company: First Trust
FIW is a multi-share ETF that invests in a mix of value stocks and growth stocks. It tracks the ISE Clean Edge Water Index. The index is made up of companies listed on the exchange, and a large part of their revenue comes from the drinking water and wastewater industries. They are selected based on market capitalization, liquidity and other requirements. More than 90% of the portfolio represents three industries: industry, utilities, and healthcare.
FIW’s three major holding companies are Tetra Tech Inc. (TTEK), a consulting and engineering services company serving the water industry; IDEX Corp. (IEX), a fluid system and professional engineering products company; and Advanced Drainage Systems Inc. (WMS), this is a manufacturer of pipes, water tanks and other drainage and water industry equipment.
The US$1.2 trillion Infrastructure Investment and Employment Act signed into law by President Biden on November 15, 2021 marks the largest investment in clean drinking water and wastewater infrastructure in the history of the United States. It includes $55 billion in special funds to replace all lead pipes and service lines in the country and clean up hazardous chemicals.
- One-year tracking total return: 33.3%
- Expense rate: 0.57%
- Annual dividend yield: 1.10%
- Three-month average daily volume: 85,535
- Assets under management: US$1.2 billion
- Date of Establishment: May 14, 2007
- Issuing company: Invesco
CGW is a multi-share hybrid fund that tracks the S&P Global Water Index. The index is composed of portfolios of companies from developed markets, representing water utilities, infrastructure, equipment, instruments and materials. More than 90% of CGW’s investment portfolio represents industrial and utility companies.
CGW’s largest holdings include American Water Corporation (AWK), a water utility company; Xylem Inc. (XYL), a supplier of water technology for residential, commercial, industrial, and agricultural customers; and Halma PLC (HLMA: LON ), a group manufacturer of security products and equipment headquartered in the United Kingdom.
- One-year tracking total return: 32.3%
- Expense rate: 0.60%
- Annual dividend yield: 0.23%
- Three-month average daily volume: 193,288
- Assets under management: US$2 billion
- Date of establishment: December 6, 2005
- Issuing company: Invesco
PHO is a multi-share hybrid fund targeting the Nasdaq OMX US Water Index. The index tracks companies listed in the United States that create products that save or purify water. Therefore, PHO owns companies that range from water companies to infrastructure, as well as materials and water equipment businesses. Machinery stocks are the largest share of PHO’s investment portfolio, accounting for more than a quarter of assets, while water utilities and life science tools and services are the second and third largest sectors, respectively.
PHO’s three major holding companies are Ecolab Inc. (ECL), which provides sanitation and cleaning systems for the food, healthcare, and water industries; Roper Technologies Inc. (ROP), a diversified industrial company that provides engineered products; and The American Water Company described earlier.
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