As the world reviews the effects of climate change, global population growth and inadequate or aging infrastructures, investors can consider water industry-related exchange traded funds to capture potential long-term opportunities.
For example, the First Trust ISE Water ETF (NYSEArca: FIW) and PowerShares Water Resources Portfolio (NYSEArca: PHO) both track U.S. companies that derive their revenue from products that conserve and purify water.
Additionally, the Guggenheim S&P Global Water Fund (NYSEArca: CGW) and PowerShares Global Water Portfolio (NYSEArca: PIO) both track companies that are associated with global water utilities, infrastructure, equipment, instruments and materials. Both funds include heavy positions in the U.S., followed by the U.K. and France. [ETFs for World Water Day]
David Twibell, president of Custom Portfolio Group, said water investing is a good way to play a long-term trend, writes Debbie Carlson for Wealth Management. However, he believes that it will be difficult to pick out individual companies since the space is slowly developing.
Consequently, Twibell points to water ETFs as a good diversified play on the sector.
“It’s not limited to one of these water subsectors; it’s got some of everything in there,” Twibell said, describing the PHO ETF.
Twibell also reminds investors to dive into an ETF’s holdings since one ETF could be vastly different from another due to their indexing methodologies.
For instance, CGW and PIO both include a heavy focus on the utilities sector, which accounts for about 40% in each of the portfolios.
Kent Croft, portfolio manager at Croft Investment Management, believes water utilities are attractive for investors with conservative portfolios. Others, like Shawn Hackett, president, Hackett Financial Advisors, argues that water conservation and lower water use could diminish utilities’ revenues. Sharlene Leurig, senior manager, water program at Ceres, though, contends that water prices will likely rise in the future to better reflect the basic fundamentals of supply and demand. [This Water ETF Could Rally]
While water is a resource, investors should not expect the water industry to act like other commodity stocks, according to Twibell.
“Water is not some place people go when there’s a big commodity boom or inflation,” Twibell added. “It’s not on people’s radar screen…. I look at it like tech, it moves part and parcel with the rest of the market,” he said.
PowerShares Water Resources Portfolio
For more information on the water industry, visit our water category.
Max Chen contributed to this article.