Water exchange traded funds (ETFs) do not need a life preserver amid the market turbulence – while they might be down, they’re still managing to swim ahead of the broader alternative energy markets.
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.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.