The Best Water ETF (PHO, PIO, CGW, FIW)
The rise in the global population created an increased demand for clean water around the world.
Unfortunately there are also a growing number of people that do not have access to clean water on a regular basis. On top of clean water, according to the World Health Organization (WHO), almost 2.5 billion people lack adequate sanitation facilities.
As a result, WHO estimates 2 million deaths per year are related to diarrheal disease linked to unsafe water and sanitation.
Those of us lucky enough to live in a developed country have clean running water from a faucet and more than likely bottles of water in the refrigerator. Due to this upbringing, most investors will overlook the water epidemic around the world. From an investing viewpoint there is money to be made with what many refer to as “blue gold."
When it comes to investing in water-related stocks the two largest opportunities lie in the industrials and the utilities. The best strategy is to consider using an ETF that will offer exposure to a variety of water-related stocks.
PowerShares Water Resource ETF (NYSE: PHO)
The ETF is heavily invested in the industrial side of the sector with 66 percent of the allocation in the stocks. Water utilities make up 19 percent of the ETF. The 29 stocks that make up the ETF are either based in the U.S. or trade on an American exchange as an ADR. The underlying index it tracks is composed of companies that create products to conserve and purify water.
The top holdings are Xylem (NYSE: XYL)and Flowserve (NYSE: FLS), which make up 18 percent of the entire ETF. The two companies are industrials that supply the water sector with pumps and other products. The ETF is up 20 percent in 2013 and is trading at an all-time high. The expense ratio is 0.62 percent.
PowerShares Global Water ETF (NYSE: PIO)
Similar to PHO, this ETF also concentrates on companies that conserve and purify water. The one major difference is that the stocks that make up PIO are not limited to trading on a U.S. stock exchange. Only 47 percent of the ETF is invested in the U.S., with 16 percent in the U.K. and 12 percent in France.
By investing more overseas the ETF expands its exposure to water utility stocks that make up 46 percent of the allocation, the same as the industrial stocks. The top holdings, which make up 17 percent, are FLS and Severn Trent PLC, a U.K.-based water utility.
Year-to-date the ETF is up 22 percent and it charges an annual expense ratio of 0.75 percent.
Guggenheim S&P Global Water ETF (NYSE: CGW)
This ETF takes a similar approach to investing as PIO with nearly equal exposure to the industrials and utilities as well as exposure outside of the U.S. This is probably why the return this year has been 20 percent, nearly inline with PIO. The annual expense ratio is 0.70 percent. Of the 54 stocks in the ETF, the top two holdings are Pentair (NYSE: PNR) and Geberit AG, which make up 13 percent of the allocation.
First Trust ISE Water Index ETF (NYSE: FIW)
The basket of 36 stocks relies more on the industrials (65 percent) than the utilities (22 percent). The makeup is not too far from that of PHO with more industrial stocks at the top of the allocation.
The top two holdings include XYL and Rexnord Corp (NYSE: RXN), which make up 9 percent of the portfolio. RXN is a motion control maker that focuses on the water industry. The ETF is up 25 percent in 2013 and charges an expense ratio of 0.60 percent.
The facts are laid out for the four water ETFs and the next step would be for interested investors to choose the best for their portfolio. Based on performance FIW would appear to be the best option.
The other argument for FIW is that its heavy focus on industrials would appear to be the best allocation considering the infrastructure needed worldwide to meet the growing water demand. Alas, the decision is in your hands.
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