The state of the water industry at the moment makes it difficult for investors to single out a few good water stocks, so an ETF can make much more sense. Cheryl Hall for The Dallas Morning News reports that water is the third-largest industry in the world, but it remains fragmented and diverse. (For more information on water, click here).

A market basket approach makes the most sense. ETFs are highly transparent so you know what you’re getting, and the expenses are much lower than a typical mutual fund. You also get diversity within a sector. (Go here to read more about the benefits of ETFs).

The profitability aspect is something else. One could argue that the technology sector is more profitable and proven now, compared to the water industry and water-related ETFs. Iif you feel supply and demand is going to get more attention, you may be a little early, but from a long-term stance, looking at water might be worthwhile.

• PowerShares Water Portfolio (NYSEArca: PHO)

• PowerShares Global Water (NYSEArca: PIO)

• Claymore S&P Global Water (NYSEArca: CGW)

• First Trust ISE Water Fund (NYSEArca: FIW)
  

There are talks about a profit bridge appearing as the stimulus dollars filter through the U.S. economy. Nick Hodge for Energy and Capital reports that $11 billion has been allocated to revamping the U.S. water supply, which could ultimately lead to a profit bridge.

The potential to profit from water comes from many areas, including:

• Drinking water infrastructure and the machines needed to make potable water
• Waste water infrastructure improvements and additions
• State-wide projects and funding for clean drinking water infrastructure projects

About $4 billion has already been delegated to water-related improvements in every state, with another $7 billion in the wings to go toward new water meters ad building more treatment plants.

ETFs are still the best way to access this sector, since trying to choose companies individually could be a time-consuming challenge for most investors.

• PowerShares Water Resources Fud (NYSEArca: PHO): up 18.2% year-to-date



• PowerShares Global Water (NYSEArca: PIO): up 32.5% year-to-date



• First Trust ISE Water Index Fund (NYSEArca: FIW): up 17.5% year-to-date



• Claymore S&P Global Water Index (NYSEArca: CGW): up 26% year-to-date

For more stories about water, visit our water category.

Water is so valuable because it is absolutely essential for survival and it’s becoming scarce.  What’s even more amazing is the fact that while more than 70% of the Earth’s surface is covered by water, only 3% is fit for human consumption.  Of this 3%, only 1% is readily available for consumption.

As a result of global population increases, rapid industrialization and increasing agricultural use water is rapidly being depleted.  Nations such as India, China, Egypt, Mexico and parts of the United States are witnessing water shortages and are part of the reason that the demand for water is on the rise, states James E. MccWhinney of Investopedia.

From an investor’s perspective, a common index that is looked at is the Palisades Water Index, which is designed to track the performance of companies involved in the global water industry.  This index can be accessed through the PowerShares Water Resources Fund (PHO), up 8.4% year-to-date. PowerShares also provides the PowerShares Global Water (PIO), up 20.8% year-to-date.

A second way to watch the water markets is through the ISE-B&S Water Index which focuses on water distribution and companies that specialize on water technology.  One could take a look at the First Trust ISE Water Index Fund (FIW) which is up 9.8% year-to-date.

A third way to access water is through the S&P Global Water Index, which holds a universe of companies listed on global developed market exchanges. The index is represented by the Claymore S&P Global Water Index (CGW), which is up 15.3% year-to-date.

For more stories on water, visit our water category.

Kevin Grewal contributed to this article.

With $15 billion in stimulus money flowing into the $400 billion water market, many are wondering what the ultimate impact is going to be. Water market experts feel that it could make the industry attractive to investors.

Michael Szabo for Reuters reports that other factors supporting a water investment include:

• Growing water scarcity
• Soaring water demand, because of growing populations and higher living standards
• Climate change

Stimulus money in other countries has also been deployed to the water sector, as well. In the past, firms such as General Electric (GE), 3M (MMM) and Siemens (SI) have actively invested in companies that monitor, manage and improve water supplies. Now government stimulus cash is delivering the latest boost.

Meanwhile, cost-effective strategies are being developed through the latest technologies and metering water use, treating waste water for reuse and desalinating sea water are high on the list of possibilities.

ETFs that access these areas of water investment:

• PowerShares Water Resources (PHO): down 4.9% year-to-date

• PowerShares Global Water Portfolio (PIO): up 8.1% year-to-date

• Claymore S&P Global Water Index (CGW): up 4.3% year-to-date

• First Trust ISE Water Index Fund (FIW): down 3.6% year-to-date

For more stories about water, visit our water category.

For investors interested in the water sector, there are many options as far as ETFs are concerned. Getting exposure to companies involved in the conservation and creation of potable water, to the companies that supply the machinery to make this possible are all ways to profit from water, explains Green Investing Now.

As conservation becomes key to create sustainable businesses, the current business model used now may be transformed into a more sustainable production process.

Here are a few of the related ETFs to choose from:

• PowerShares Global Water Portfolio (PIO): expense ratio 0.75%; this ETF is international, with a 30.7% weighting in the United States. It seeks to replicate the performance of the Palisades Global Water Index.

• PowerShares Water Resources Portfolio (PHO): expense ratio 0.66%; this ETF focuses on the provision of potable water, the treatment of water and technology and services directly related to water consumption.

• Claymore S&P Global Water ETF (CGW): expense ratio 0.65%; the companies in this ETF are associated with demand of water, water utilities, infrastructure, equipment, instruments and materials. The index focuses on global developed markets.

• First Trust ISE Water Index Fund (FIW): expense ratio is 0.77%; the index includes the top 36 stocks in the industry and the portfolio is balanced twice a year.

For more stories on water, visit our water category.

Water ETFs focus on companies that service and power water systems. To the surprise of many, they have been outperforming the more diversified alternative energy ETFs. An analyst explains that the water industry is much older and established, and more well-defined than the alternative energy technologies in general. Water does relate to alternative energy, but it does not belong in the same category, as the fundamentals of water resources are more well-defined, reports Index Universe staff.

Both PowerShares Water Resources (PHO) and First Trust ISE Water (FIW) are two that are outperforming by a large margin. Year-to-date, PHO is down 24.8%, while FIW is off by 20.4%. Compare that with PowerShares WilderHill Clean Energy (PBW), which is down 49.8% year-to-date.

But PowerShares Global Water (PIO) is another story within this asset class, as it hasn’t been faring much better than alternative energy funds. It’s down 40.8% year-to-date. The fund holds only one-fourth of domestic names, while PHO holds only American Depositary Receipts (ADRs) and stocks.

The exposure to developing markets and emerging markets with the acute water needs is what sets PIO apart from the rest. Water ETFs also tend to focus more on treatment companies and resource managers. Utilities and infrastructure also play a part, and infrastructure can take years for returns to register, as these are large-scale projects.

As almost half of the world is experiencing drought-like conditions, the shortages are not a mirage for companies engaged in water treatment, equipment, technology and services, reports Trang Ho for Investor’s Business Daily.

Instead of looking at water as a commodity, some suggest that it could be viewed as more of an infrastructure play. Water infrastructure is an industry with vast investment opportunities.

The most popular of the water ETFs, PowerShares Water Resources (PHO), has risen 1.8% year-to-date and is up 11.8% in the last six months.

It’s drowning out the S&P 500, which has sunk with a 13.2% loss year-to-date and a 12% drop in the past year.

Most other water ETFs have been performing well against the S&P, but are down year-to-date. If the water supply and demand remains tight, these funds could demonstrate their potential:

• PowerShares Global Water (PIO): down 17.4% year-to-date
• Claymore S&P Global Water (CGW): down 10.2% year-to-date
• First Trust ISE Water (FIW): down 3.8% year-to-date

For full disclosure, Tom Lydon’s clients own shares of PHO.

With many media reports treating water as a scarce natural resource in danger of depletion, Katie Southwick for Advisor Perspectives explains why they feel opportunities exist in infrastructure focusing on water recovery, purification and delivery.

Despite the earth comprising nearly 80% water, only 3% of it is fresh. On top of this, only 1% of the fresh water is available for consumption. With a growing demand for water, water infrastructure is an industry with vast amounts of investment opportunities.

The Environmental Protection Agency (EPA) estimates that the United States needs $500 billion of water infrastructure investment over the next 20 years. Globally, infrastructure investments are well under way, as China is expected to spend roughly $120 billion in water infrastructure in only the next few years.

Many major companies are also looking to invest in water because industries such as agriculture, pharmaceuticals and electric power all depend on clean water. General Electric (GE), for example, purchased a water treatment company, Ionics, Inc., for $1.3 billion. GE also expects to reach $10 billion in water- business sales over the next 10 years and has plans to open several desalination plants a year, each of which cost up to $300 million.

With this industry growing at such a rapid pace, some of the ETFs focusing on water include:

• PowerShares Water Resource Portfolio (PHO), is up 1.7% year-to-date. PHO tracks the Palisades Water Index and has a market value of $2.3 billion.
• First Trust ISE Water Index (FIW), is up 2.1% year-to-date. FIW has a $43 million mareket value and tracks the ISE Water Index.
• Claymore S&P Global Water Index (CGW), is down 9.7% year-to-date. CGW has a $358 million market value and tracks the S&P Global wAter Index.
• PowerShares Global Water Portfolio (PIO), is down 14.7% year-to-date. PIO is based on the Palisades Global Water Index and has a market value of $382 million.

For full disclosure, some of Tom Lydon’s clients own shares of PHO.

Updates for water systems are estimated to exceed $250 billion in costs over the next 20 years in the United States alone. However, with these sort of upgrades essential throughout the world, water infrastructure is quickly emerging as a market for investors.

Steve Henn for Marketplace notes that as water and water infrastructure quickly become a very big business, private equity investors and major corporations have taken notice. Executive director of the International Private Water Association, Kathy Sandling was quoted as saying, “What we are talking about is trillions of dollars.” Her group feels as though the only way to bring clean water to the masses is through private investment.

With the water and water infrastructure issue looming in the United States, it has found its way into discussions among Congress. Legislators are currently discussing a second economic stimulus bill that could include almost $15 billion in infrastructure spending. Despite water lurking in the shadows of oil prices, water and water infrastructure are becoming more prevelant as both a national and international issue, report Lisa Lambert, John Crawley and Richard Cowan for Reuters. As more money flows into mending water systems globally, ETFs could reap the benefits.

Funds that cover this area are:

• PowerShares Water Resources Fund (PHO), up 0.4% year-to-date
• Claymore S&P Global Water (CGW), down 8.4% year-to-date
• First Trust ISE Water (FIW), up 0.7% year-to-date
• iShares S&P Global Infrastructure (IGF), down 13.3% year-to-date

Water’s future could offer opportunities for investors who think of it as a commodity, benefiting companies involved in the sale, purification, distribution and infrastructure of the element.

The Chicago Tribune reports that T. Boone Pickens, corporate bigshot and oil tycoon, has been buying up water rights in the Texas panhandle based on the belief that water is going to become scarce and salable. The logic is that climate change, shrinking lakes and rivers, mixed with population growth will transform water into a commodity.

New York’s tap water supply is already threatening to become a victim of climate change.

As the supply of the commodity tightens, governments and companies all over the world are finding ways to deal with the issue, which has increased the number of ways to invest in water-related companies.

Most water ETFs have been fairly flat over the last year, partially because it’s not a commodity people pay much attention to. It’s hard to get much attention when you’re not going for $150 a barrel. But water is drying up in certain areas, and the price is going higher.

What is considered a water company is not as purely focused as many people think, since it could include related things like technology that goes into the water supply.

Water ETFs include:

• The $2.4 billion PowerShares Water Resources Fund (PHO), which tracks the Palisades water index of companies in water treatment, water utilities and pipe and pump manufacturing. It is up 1 percent over the past 12 months, but down 6.6% year-to-date.

• The $386 million Claymore S&P Global Water (CGW), which tracks the S&P global water index of water utilities, infrastructure and equipment. It is down 7 percent over the past year and down 12.2% year-to-date.

• The $34 million First Trust ISE Water (FIW), which tracks the ISE water index of companies that derive a substantial portion of revenue from the water and wastewater industries. It is up 2 percent over 12 months and down 5.6% year-to-date.