Water ETFs Rally to Multiyear Highs
January 16th at 11:48am by Tom Lydon
Water resources ETFs have rallied over 20% the past year to outperform the S&P 500 and are breaking out to multiyear highs.
For example, PowerShares Water Resources (NYSEArca: PHO) is up 23% for the trailing 12 months. It is the largest ETF in the category with assets of $847 million and an expense ratio of 0.62%.
“This exchange traded fund tracks an index of industrial firms dealing primarily in the water space: water treatment, water utilities, pipe and pump manufacturing, and so on. Most of these companies are either utilities that earn regulated returns or diverse industrial firms that have significant revenues generated from businesses other than water,” according to a Morningstar analyst report on PHO. [Climate Change, Rising Populations Put Water ETFs in Focus]
“We must admit that this fund does a better job of capturing an investable water theme than any other in the ETF market, but PHO’s problem is that too few companies focus solely on water-related equipment to produce a high-quality index,” the investment research firm adds. “Any commonalities among this fund’s holdings based on the water theme are likely to be overshadowed by firm- and industry-specific factors.”
In other words, the water ETF has exhibited a very high correlation with the industrials sector.
Other water-themed ETFs include Guggenheim S&P Global Water Index (NYSEArca: CGW), First Trust ISE Water (NYSEArca: FIW) and PowerShares Global Water (NYSEArca: PIO).
“Our planet’s growing population is always going to need clean water and, even in developed countries, many water systems have aging infrastructure that needs updating. More than a handful of water-related companies had strong performances over the past year,” Selena Maranjian at the Motley Fool writes. “Demand for clean water isn’t going away anytime soon.”
Bank of America Merrill Lynch strategists recently turned bullish on water stocks. They cited the “global water crisis,” Barron’s reports. A billion people lack access to clean water, the firm writes. “[W]ater is undergoing pressure both on the supply and demand side.”
PowerShares Water Resources
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.