California is mired in a drought, the likes of which some experts say hasn’t been seen in centuries. That’s just one example, but it underscores the potential of water equities and their related exchange traded funds.
On Wednesday, both the Invesco Global Water Portfolio (NASDAQ: PIO) and the Invesco Water Resources ETF (PHO) hit all-time highs. Often heavy on industrial and utilities stocks, water ETFs are topping traditional funds representing those sectors. For example, PHO and PIO are up an average of 22.9% year-to-date while the S&P 500 Industrial and Utilities indexes are higher by 16.6% and 8.1%, respectively.
Though it hasn’t been widely discussed, the infrastructure legislation currently inching its way through the Senate contains some points of emphasis that are relevant to water ETFs.
The bill “makes the largest investment in clean drinking water and waste water infrastructure in American history, delivering clean water to millions of families,” according to the White House.
Like the infrastructure many investors are already familiar with – roads, bridges, railways, etc. – water infrastructure in the U.S. is in dire need of an update. Those investments, which could buoy PHO and PIO over the long-term, are all the more necessary due to climate change.
“Last year alone, the United States faced 22 extreme weather and climate-related disaster events with losses exceeding $1 billion each – a cumulative price tag of nearly $100 billion,” added the White House.
Both Invesco ETFs are levered to the infrastructure package. PIO, which tracks the Nasdaq OMX Global Water Index and has nearly $311 million in assets under management, is heavily allocated to industrial and utilities stocks. PHO follows the NASDAQ OMX US Water and member firms in that benchmark “create products designed to conserve and purify water for homes, businesses and industries.”
The $1.86 billion PHO’s exposures are important because 10 million American and 400,000 centers of education (schools, childcare centers and more) lack adequate clean drinking water.
Investors are taking note of the water ETF opportunity as PHO has seen year-to-date inflows of almost $218.1 million, more than 10% of its assets under management tally. While there are compelling near-term factors for PIO and PHO, investors should view these funds as long-term instruments. Over the past three years, PHO beat the S&P 500 Industrial Index by 310 basis points with lower annualized volatility.
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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.
