As water-related investing gets more and more attention, exchange traded funds (ETFs) are looking to get a piece of this $400 billion global industry.
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.
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.