Investors can utilize water sector exchange traded funds to benefit from a parched country as a booming shale oil industry increases wastewater and heightened drought conditions dry up the West.
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. [Water ETFs for Thirsty Investors]
FIW has a 0.60% expense ratio and PHO has a 0.61% expense ratio. Year-to-date, FIW is 0.5% lower and PHO is down 1.6%.
U.S. hydraulic-fracturing, or fracking, companies could triple spending on water treatment and reuse over the next six years to $357 million in 2020 from $138 million this year due to drought conditions that threaten supplies, reports Justin Doom for Bloomberg.
The industry is expected to spend almost $6.4 billion on water management, treatment, supply, transport and storage this year alone.
“We are going to see firms with advanced water-treatment technologies competing for business against diesel trucks over the next few years,” Erin Bonney Casey, a Bluefield analyst, said in the article. “Even though water treatment and reuse costs have proven to be nearly 15 percent lower than trucking and disposal in some cases, fracking companies have yet to fully embrace treatment.”
Fracking requires high-pressured water-based fluids to create cracks in rock formations for natural gas and petroleum extraction.
Additionally, due to the ongoing drought conditions blanketing the West, some states are increasing spending on new projects. For instance, Californian voters approved a $7.2 billion bond initiative to fund water projects, CNBC reports.
Specifically, the sale of water bonds could support projects including, $2.7 billion for new water storage projects for surface and groundwater, $725 million for water recycling, $810 for regional water security and drought preparedness, $520 for safe drinking water, $1.5 billion for streams and watershed protection, $395 million for flood control and $900 million for groundwater cleanup.
Voters in Texas, which is starting to see a drought of its own, have already approved a $2 billion water fund in 2013.
PowerShares Water Resources Portfolio
For more information on the water sector, visit our water category.
Max Chen contributed to this article.