Why Water ETFs May Belong In Your Portfolio

February 17, 2017

  • PowerShares Water Resources Portfolio (PHO) focuses exclusively on U.S. companies that create products to conserve and purify water. It’s a U.S. fund that picks securities by market cap, but it then applies a modified liquidity-weighting to its holdings. PHO tilts more toward industrial names—about 64% of the portfolio—and less toward utilities—at 15%. It’s also the most liquid water ETF in the market today. It has some 37 holdings, with an expense ratio of 0.61%.
  • Guggenheim S&P Global Water Index ETF (CGW) is a market-cap-weighted portfolio of global water utilities, infrastructure and water equipment and materials companies. It’s a broader and more vanilla take on the segment than PHO, with a 46-holding basket. Industrials represent about 48% of the mix, followed by utilities at 28%. CGW costs 0.64% in expense ratio.
  • First Trust Water ETF (FIW) is U.S.-centric. The fund owns 36 of the largest U.S.-listed water companies, ranked by market cap and weighted equally within five tiers. The weighting scheme gives this ETF a tilt toward smaller-cap names. Industrials also lead here with a 60% allocation, compared to 17% tied to utilities. The ETF costs 0.57% in expense ratio.
  • PowerShares Global Water Portfolio (PIO) is PHO’s global-in-scope counterpart. The fund emphasizes liquidity of its holdings, as does PHO, by employing a modified liquidity-weighting scheme of water-related companies. Industrials and utilities lead sector allocations at 36% and 30%, respectively, but PIO is relatively concentrated—its top five holdings represent about 35% of the portfolio. PIO also costs more at 0.76% in expense ratio.
  • Summit Water Infrastructure Multifactor ETF (WTRX) is a fundamentally-weighted portfolio of global companies that derive most of their revenues from water-related businesses. The methodology looks at things like P/E ratios, EBITDA and return on equity. Industrials snag about 45% of the portfolio, while utilities represent about 30%. WTRX, which is less than one year old, costs 0.80% in expense ratio.
  • Tortoise Water Fund (TBLU), the newcomer in the space, splits the portfolio into two. In one bucket, representing 70% of the mix, are companies that derive at least 50% of their revenues from water-related operations. The other bucket, at 30%, is made up of companies that derive less than half their revenues from water-related activities. The ETF’s tiered approach comes with the cheapest price tag in the segment: 0.40% in expense ratio.

These differences are behind the disparity in these funds’ performances, as the 12-month chart below shows (note WTRX launched last August): 

Chart courtesy of StockCharts.com

Water, today, is a growth industry, and one faced with a lot of moving parts in the form of demographic trends, industrial use demands, technology advancements and regulatory changes. Thanks to ETFs, accessing this pocket of the investable universe is easy and increasingly cheap.

Contact Cinthia Murphy at [email protected]

 

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