Skip to content

Engaging The Water Market With ETFs

Even though we need water more than any other substance on earth, it costs a hefty sum; as Robert Glennon from the University of Arizona’s Rogers College of Law told the New York Times, “water may be a gift from God, but God doesn’t give us pipes, and pipes are expensive.” Fortunately, there are multiple ways to invest in companies that already earn large amounts of revenue from the improvement and expansion of water systems, and which need to grow in the coming years. 

In a prior piece, we discussed buying shares of water utilities as a strategy to support companies that aim to provide access to this indispensable resource. Another possible avenue for your dollars are exchange-traded funds (ETFs), which bundle multiple investments into one. 

ETFs are a particularly good option for investors who are overwhelmed with the number of different companies providing solutions to our collective water problem. Selecting one of these funds will give exposure to a professionally managed selection of different actors and types of strategies, and thus cuts out the need to do too much research on a company-by-company basis. Plus, the associated fees are usually not very high, often as low as 0.50 percent of the total investment. 

Most water ETFs are managed passively by tracking indexes, which act as hypothetical collections of stocks that measure the value of this sector of the market. Some of the most influential indexes covering the market for water are: 

Among the ETFs tracking such indexes, Invesco is a major presence, offering three top-performing funds. The Invesco Water Resources ETF (PHO) is based on the Nasdaq OMX US Water Index and consists of 37 small- and mid-cap holdings. It is the largest U.S. fund investing in companies whose primary business involves conservation and purification of water. 

The Invesco Global Water ETF (PIO) tracks the same index and consists of 42 holdings, but is more diversified, investing in more large-cap growth companies and with only 51 percent of holdings in the U.S., as opposed to more than 97 percent for the former. 

Finally, the Invesco S&P Global Water Index ETF (CGW) tracks the S&P Global Water Index across 50 holdings. While those holdings are mainly in the U.S., like those of the Water Resources ETF, this index is more focused on utilities, while Water Resources has “more focus on companies developing technology around delivering clean water,” as J. Jason Bloom, senior director of Global Macro E.T.F. Strategy at Invesco, told the New York Times

Although Invesco is an active player in the field, it is not the only provider of ETFs. Another leading ETF is First Trust Water ETF (FIW), corresponding to the ISE Clean Edge Water Index and with 36 holdings in fields like “water testing, treatment, infrastructure, pumps, utilities, distribution, and purification and filtration.” 

Together, these examples display how investing in such a fund can diversify your portfolio by exposing it to many types of water-related companies. All the above-mentioned ETFs include Xylem Inc. (XYL), a company with its headquarters in Rye Brook, New York that has focused on improving water system infrastructure. 

At the same time, each of these funds includes some type of holding in the field of water purification: Evoqua, Ecolab, or both. Evoqua Water Technologies Corp (AQUA), located in Pittsburgh, Pennsylvania, offers services like aerobic and anaerobic wastewater treatment and products like disinfection, filtration, and high purity water systems; Ecolab (ECL), in St. Paul, Minnesota, shines in the water treatment and purification solutions that it offers to clients in the essential food, healthcare, and hospitality industries. 

Dan Deming, managing director at KKM Financial LLC, told The Globe and Mail, “I like the diversity the ETFs offer. You reduce your exposure from a single name.” As an easy investment method in a wide mix of companies that are likely to perform well in the long run, then, putting money into water ETFs seems like a winning strategy.


Back To Top