The Case for Water ETFs
July 25th, 2012 at 7:00am by Tom Lydon
Exchange traded funds are one of the most efficient tools to use for accessing the niche water sector. The water industry is forecast to grow over time, as potable water supply will have trouble keeping up with demand.
“Although it doesn’t produce the constant headlines like other commodities these days, water is irrefutably the most essential natural resource to human survival. Available fresh water is less than ½ of 1% of all of the water on Earth, and various trends are constantly driving the supply of fresh water lower and the demand for fresh water higher at increasing rates,” Kent Croft wrote on Seeking Alpha. [Best ETFs for Water]
An ETF such as the PowerShares Global Water ETF (NYSEArca: PIO) gives investors exposure to the valuable water sector, while cutting the risk of single company investing. Due to the niche nature of water investments, there is more risk involved with investing in a single company. An ETF gives exposure to multiple companies, so if an upstart folds, the losses are mitigated. Plus, the cost of an ETF is much lower than that of a mutual fund. PIO costs about 0.75%.
Water infrastructure spending is currently on hold in most countries, but as economies recover and emerging markets begin to expand, the need for these companies will grow. [Chart of the Day: Water ETFs]
Currently, as the drought is in focus, companies engaged in the water sector on an industrial level are poised to gain. Likewise, utility companies are also a prospect, with the need for service and treatment to create potable water in both developed and emerging economies. Companies that can clean water or explore new water supplies for thirsty populations are also important. [Rising Tide: Water ETFs]
Another feature of water companies and focused ETFs is that they supply a dividend yield. Most utility companies are known to payout a steady income stream. The use of water on an individual, industrial and environmental level also validates the case for investment in a water ETF.
Other water ETFs:
- First Trust ISE Water (NYSEArca: FIW)
- Guggenheim S&P Water Global Water Fund (NYSEArca: CGW)
- PowerShares Water Resources (NYSEArca: PHO)
PowerShares Global Water ETF
Tisha Guerrero 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.