Nasdaq Plans More Water Indexes

July 22, 2011

 

The Nasdaq OMX Group, the world’s largest exchange company, is planning later this month to launch four new indexes that focus on the water industry at a time when water, or the scarcity thereof, is making headlines across the globe, and a number of water-focused ETFs are resonating with investors.

Nasdaq already offers the Nasdaq Water Index and Nasdaq Water Total Return Index under its family of “green” strategies. Its four new indexes, slated for debut on July 27, pick companies from the same universe as their predecessor indexes, but have a different weighting methodologies that factor in liquidity to determine the amounts of each component, the company said.

All in all, Nasdaq will have six water-related indexes, three of them what the company calls “price return” indexes, and three “total return” indexes. The difference between the two is that total return portfolios are calculated by reinvesting cash dividends on the ex-date, while price return strategies disregard dividends altogether.

The lineup, designed to track companies that create products to conserve and purify water for domestic, commercial and industrial use, includes:

  • Nasdaq OMX Global Water Index (symbol: GRNWATERL)
  • Nasdaq OMX Global Water Total Return Index (symbol: GRNWATERLX)
  • Nasdaq OMX US Water Index (symbol: GRNWATUSL)
  • Nasdaq OMX US Water Total Return Index (symbol: GRNWATUSLX)

 

The timing of the launch—planned for July 27—coincides with news-making droughts across much of the U.S. South and Southwest that has hindered local economies from Arizona to Florida. Outside of U.S. soil, concerns about water supplies resonate in many regions including parts of Australia, western China and parts of Africa, which have also seen firsthand the devastating effects the lack of water can have on economic prosperity.

Indeed, tightening water supplies is a global issue as world population continues to grow, and its demand for water increasingly puts a strain on the water supply chain. Companies involved with the production and service of water sit at the forefront of the issue.

ETFs In The Space

A number of existing water indexes—from companies including Palisades Water Index Associates, Standard & Poor’s and ISE—already have ETFs designed around them. But none of Nasdaq’s existing or planned indexes is yet used as the benchmark of any ETFs.

A pair of Palisades indexes, for example, are behind two water-focused ETFs from Invesco PowerShares.

One, the PowerShares Water Resources Portfolio (NYSEArca: PHO), was launched in 2005 and now has more than $1.19 billion in assets. PHO is a U.S.-focused portfolio of water companies, while the PowerShares Global Water Portfolio (NYSEArca: PIO), launched in 2007, casts a wider net around the world.

PIO followed Guggenheim’s S&P Global Water Index ETF (NYSEArca: CGW), but has gathered more assets than CGW, despite the fact that that PIO has a higher annual expense ratio of 0.75 percent, higher than CGW’s 0.65 percent.

PIO has more than $370 million in assets, while CGW has gathered $254 million, according to data compiled by IndexUniverse.

Wheaton-Ill.-based First Trust, a fund provider increasingly known for its niche ETFs, is another company populating the water ETF segment. Its First Trust ISE Water ETF (NYSEArca: FIW), linked to the ISE Water Index, has gathered about $70 million since its May 2007 inception.

FIW’s portfolio mostly provides investors with exposure to the U.S. water industry, but the fund does have a small allocation, less than 10 percent of the total, to international companies, namely Brazilian and French names.

 

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