Water stocks and sector-related exchange traded funds have rallied this year as investors turned to more conservative utility plays, but the sector may still have legs as the world confronts increasing fresh water scarcity.
Year-to-date, the First Trust ISE Water ETF (NYSEArca: FIW) and PowerShares Water Resources Portfolio (NYSEArca: PHO), which both track U.S. companies that derive their revenue from products that conserve and purify water, increased 18.5% and 8.0%, respectively.
Additionally, the Guggenheim S&P Global Water Fund (NYSEArca: CGW) and PowerShares Global Water Portfolio (NYSEArca: PIO), which both track companies that are associated with global water utilities, infrastructure, equipment, instruments and materials, rose 7.7% and 4.2% so far this year, respectively. Both funds include heavy positions in the U.S., followed large European exposure.
The water sector has piggybacked off the rally in the relatively safe and conservative utilities stocks, along with the forecasted increase in scarcity for the crucial resource and instances of contaminated public water supplies, Forbes reported.
For instance, the recent Flint water crisis highlighted the need for clean potable water, which helped put a spotlight on the water sector.[related_stories]
Moreover, water investing is a good way to play a long-term trend as the world still needs to find sustainable sources of potable fresh water, especially with the specter of climate change.
“Climate change risk will, in practice, flow through either excess or lack of water with the potential for severe impacts to societies globally,” according to the World Economic Forum, which listed water crisis as the third greatest risk facing the world and ninth most likely to happen.
For more short-term traders, technical analysis shows that the water sector is turning around with PHO completing a classic bullish “double-bottom” reversal pattern in late February, MarketWatch reported.
Moreover, the four water-related ETFs are now trading above their long-term, 200-day simple moving averages, and their short-term trend lines are beginning to cross above the long-term trends.
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First Trust ISE Water ETF