With California’s epic drought grabbing headlines across the country, it might be logical to assume that water exchange traded funds delivering banner performances in 2015.
In reality, the year-to-date performances by the four water ETFs widely diverge, indicating California’s drought has lifted some of these funds while being a non-starter for others.
The First Trust ISE Water ETF (NYSEArca: FIW) and the PowerShares Water Resources Portfolio (NYSEArca: PHO) both track U.S. companies that derive their revenue from products that conserve and purify water. What FIW and PHO do has not prevented the ETFs from falling 5.1% and 1.7%, respectively, year-to-date. [Looking at Water ETFs]
“Water-equipment suppliers, accounting for the bulk of the PowerShares and First Trust ETFs, have slumped as well. Shares of Energy Recovery (NasdaqGM: ERII) and Layne Christensen (NasdaqGM: LAYN), included in both ETFs, dropped more than 30 percent this year as lower oil prices hurt demand from energy companies,” reports David Wilson for Bloomberg.
Those stocks combine for 3.3% of the $195 million FIW’s weight and 1.4% of the $863.6 million PHO.
California’s drought struggles have prompted Gov. Jerry Brown to order a 25% reduction in water use. At a news conference earlier this week, Brown called for fines of up to $10,000 for wanton water wasters.
Whether it is due to California’s drought or other factors, some water ETFs have been solid performers this year. For example, the $374.9 million Guggenheim S&P Global Water Fund (NYSEArca: CGW) is up 4.4% this year.
CGW, the first dedicated water ETF to trade in the U.S., tracks companies associated with the global demand for water, including water utilities, infrastructure, equipment, instruments and materials. While CGW, which turns eight in May, appears to be a niche play, investors have embraced the theme of investing in increasing water infrastructure needs and spending. The ETF does not hold shares of Energy Recovery or Layne Christensen. [The Right ETF for World Water Day]
The $281.9 million PowerShares Global Water Portfolio (NYSEArca: PIO) has been the star among water ETFs this year with a 6.7% gain. PIO holds 36 companies that are associated with global water utilities, infrastructure, equipment, instruments and materials. Like CGW, PIO does not hold sharesof Energy Recovery or Layne Christensen.
Guggenheim S&P Global Water ETF
