As shortages are becoming more common across the United States, water is an increasingly precious resource.
With quick fixes to a massive problem unlikely to emerge soon, some climate-conscious investors are turning to companies that are working on long-term solutions.
There are currently six ETFs covering the water space, but only four of them have more than $100 million in assets under management.
One fund in particular stands out in terms of AUM and performance, while each fund offers its own take on the space that could appeal to investors with strong convictions about clean water and how we should rethink our water usage.
|Ticker||Fund||Segment||Issuer||Exp Ratio||AUM||Holdings #||Inception|
|PHO||Invesco Water Resources ETF||Equity: U.S. Water||Invesco||0.60%||$1.72B||36||12/6/2005|
|FIW||First Trust Water ETF||Equity: U.S. Water||First Trust||0.53%||$1.25B||36||5/8/2007|
|CGW||Invesco S&P Global Water Index ETF||Equity: Global Water||Invesco||0.57%||$990.45M||49||5/14/2007|
|PIO||Invesco Global Water ETF||Equity: Global Water||Invesco||0.75%||$279.50M||42||6/13/2007|
|EBLU||Ecofin Global Water ESG Fund||Equity: Developed Markets Water||Tortoise||0.40%||$64.39M||39||2/5/2017|
|AQWA||Global X Clean Water ETF||Equity: Global Water||Mirae Asset Global Investments Co., Ltd.||0.50%||$6.78M||38||4/8/2021|
Source: FactSet; data as of 8/3/2022
PHO vs FIW
The Invesco Water Resources ETF (PHO), which is the largest and also the oldest fund in this space, has $1.72 billion in assets. It launched in late 2005 and is also one of the best-performing funds in the group. PHO targets U.S. companies that are involved in the conservation and purification of water.
The water ETF closest in size to PHO is the First Trust Water ETF (FIW), with $1.25 billion in assets. The fund similarly tracks an index with 36 holdings, though it uses an equal-weighting approach rather than market capitalization. Its objective is somewhat broader in scope, moving beyond just water conservation and purification to include companies that operate in the wastewater space. The two ETFs have an overlap of 28 companies, or 78% of their portfolios.
While PHO has generally been one of the top-performing funds in the group, FIW is usually not far behind. Looking at time periods ending August 3, FIW leads the water ETFs when it comes to one month, year to date, 12 months, three-year and 10-year periods.
PHO is the top performer for the three-month and five-year periods. FIW’s broader scope and equal-weighting methodology have contributed to its slight outperformance relative to PHO.
|PHO||Invesco Water Resources ETF||11.33%||7.36%||-13.95%||-8.80%||14.27%||14.41%||11.29%|
|FIW||First Trust Water ETF||11.51%||6.43%||-13.84%||-7.58%||15.45%||14.27%||14.14%|
|CGW||Invesco S&P Global Water Index ETF||9.65%||1.90%||-19.45%||-14.24%||11.54%||9.62%||10.71%|
|PIO||Invesco Global Water ETF||7.95%||0.30%||-21.48%||-18.91%||8.39%||8.48%||8.84%|
|EBLU||Ecofin Global Water ESG Fund||8.74%||2.62%||-21.71%||-16.84%||10.14%||10.15%||--|
|AQWA||Global X Clean Water ETF||9.76%||5.59%||-16.15%||-12.02%||--||--||--|
Source: FactSet; data as of 8/3/2022
Consider also that PHO charges 0.60% in expense ratio, while FIW comes with an expense ratio of 0.53%. In terms of liquidity, both funds trade in the millions of dollars every day, with a spread of just 0.10% for FIW and 0.09% for PHO.
Most of the water ETFs move in sync with each other, though the global funds saw steeper declines during the year-to-date and 12-month periods.
Global Scope for Global Problems
U.S. exposure dominates the four global ETFs, with the country’s weight in the funds ranging from 58% to 66%, but the issue is bigger than just the US infrastructure and its vulnerability to climate change. Since the water crisis is global in nature, despite the outperformance of the U.S.- focused funds, investors also may want to consider global ETFs.
While the international exposure offered by these funds doesn’t look to have been additive for performance, that’s not to say it won’t be in the future.
According to a Bloomberg article, the most at-risk countries for a water crisis are located primarily in the Middle East, Africa and Asia. There’s an argument to be made for investors targeting global exposure for a global concern.
At first glance, the Global X Clean Water ETF (AQWA) would be the best choice, as it is one of the cheapest funds in the category and has exhibited the best performance. However, it’s the smallest and least liquid fund in the group, with less than $10 million in assets, and it only has a little more than a year of trading under its belt. PHO’s global counterpart might be a good alternative.
Not only does the Invesco S&P Global Water Index ETF (CGW) have nearly $1 billion in assets under management as well as the accompanying liquidity, but its performance is also fairly close to AQWA’s. Just note that it has roughly half of its portfolio of in common with PHO, and almost as many securities in common with FIW.
That said, CGW does not have related ESG criteria and it takes a broader approach, combining exposure to water utilities along with infrastructure, equipment and materials.
Investors should consider their approach and asset allocation to the water industry based on which funds provide the features they’re looking for. PHO is the dominant fund in the category, but FIW has seen more inflows in the past 12 months, pulling in $238 million while PHO took in about $73 million. FIW also has a slight edge in terms of performance.
CGW, another Invesco-issued fund, takes a broader view than either PHO or FIW in that it covers more categories related to the water industry and has a more global approach.
Although global exposure has not translated into outperformance relative to U.S. water stocks to date, that could change.
Contact Heather Bell at [email protected]