Market Overview

This Water ETF is Gushing Higher

This Water ETF is Gushing Higher

Among exchange traded funds with exposure to the industrial and utilities sectors, water funds can go overlooked, but there is significant opportunity with these funds.

This year, the Invesco Water Resources ETF (NASDAQ: PHO) is proving as much.

What To Know

PHO recently turned 13 years old and is home to nearly $857 million in assets under management, making it one of the oldest and largest US-listed water ETFs. The fund tracks the NASDAQ OMX US Water Index.

That index “seeks to track the performance of US exchange-listed companies that create products designed to conserve and purify water for homes, businesses and industries,” according to Invesco.

Why It's Important

PHO is on a tear this year. The water ETF is higher by 16.27 percent and touched an all-time high last Friday, making it one of just 26 U.S.-listed ETFs to do so.

PHO is home to 35 stocks, about 80 percent of which hail from the industrial and utilities sectors. This year, PHO is topping the largest utilities ETF by a margin of better than 3-to-1. Last year, the water fund performed less poorly than the largest industrials ETF. Over the past several years, PHO's annualized volatility has generally been inline with that of the largest utilities ETF while being well below that of the biggest industrials ETF.

While the comparisons to the industrial and utilities sectors can imply PHO is not a growth fund, the opposite is actually true. Barely more than 5 percent of PHO's components are classified as value stocks while half the fund's holdings are either large-, mid- or small-cap growth stocks.

What's Next

Heading into 2019, some analysts were bullish on water stocks following last year's selloff.

“We believe the disconnect creates opportunity, with the market selloff providing compelling entry points in a number of high-quality names where both the tactical fundamentals and strategic stories remain intact,” said Boenning & Scattergood Ryan Connors in a note out late last year.

Investors have added $1.59 million to PHO over the past month.

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