Diving into the Water ETFs
June 15th 2011 at 7:52am by Tom Lydon
Water is becoming an increasingly scarce resource on a rising global population and other factors. Several exchange traded funds are designed to profit from this long-term trend, but some critics say the funds are too gimmicky.
Still, the largest water ETF, PowerShares Water Resources Portfolio (NYSEArca: PHO), has soaked up more than $1 billion in assets, so the sector has allure for some investors. It is down 1% so far this year.
The tracking index “seeks to identify a group of companies that focus on the provision of potable water, the treatment of water, and the technology and services that are directly related to water consumption,” according to Invesco PowerShares.
Analysts at Citigroup Global Markets expect water to be traded as an asset in the not so distant future, with water-related securities traded on global exchanges, reports Daniel Wagner for BusinessWeek. If a potential investor wants to look into this market, the analysts suggest browsing through companies that have high-end tech, treat water generated when fossil fuels are extracted or desalinate sea water. It is expected that these three areas will push growth in the industry by 4% to 6% over the next year.
Industry observers note the U.S. has been lagging on its investment into water infrastructure — the U.S. will need to invest $335 billion by 2026 to maintain basic access to clean water, according to some estimates.
So far, investment in water treatment and distribution infrastructure has been lacking due to the artificially low prices. However, analysts believe this trend will reverse once water is treated like any other global commodity.
“As the world population increases, so does the demand for clean water. Global water consumption has increased nearly twice as fast as population growth in recent years. United Nations projections place global population growth at 30% by 2030, and as demand continues to grow accordingly, some projections place the water industry at a trillion-dollar market cap as early as 202o,” Morningstar ETF analysts write in a profile of PowerShares Water Resources.
“Water withdrawals are nearly three times higher today than they were 50 years ago. The lion’s share of that demand has come from agricultural irrigation, a demand driver that only looks to grow with the population,” they said. “Such trends would seem to make investment in the water space enticing, but implementation has proved difficult.”
PowerShares Water Resources Portfolio
For more information on water, visit our water category.
- PowerShares Water Resources Portfolio (NYSEArca: PHO)
- PowerShares Global Water Portfolio ETF (NYSEArca: PIO)
- Guggenheim S&P Global Water Index (NYSEArca: CGW)
- First Trust ISE Water Index Fund (NYSEArca: FIW)
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.