Investing along the lines of climate change often focuses on increased deployment of renewable energy, clean technology products and services, and decarbonization efforts. However, as recent global droughts confirm, water is very much a part of the climate change discussion. As such, investors may want to pay renewed attention to exchange traded funds, including the Invesco Global Water ETF (PIO).
PIO, which tracks the Nasdaq OMX Global Water Index, debuted in June 2007 and holds 51 stocks. The Invesco fund is showing signs of recent momentum, as it’s higher by 7.65% over the past month, but it’s the long-term water investment thesis that could make this ETF appealing to tactical investors. Looking at the Valuing Water Finance Initiative (VWFI), it’s clear that global asset managers are prioritizing water.
“Its 64 signatories—including 26 asset managers—have almost $10 trillion of assets under management. The VWFI is currently targeting 72 companies for engagement, most of which are in the food and beverage, apparel, and technology industries,” wrote Morningstar analyst Lindsey Stewart.
Underscoring the long-term opportunity set with PIO is the point that asset managers are increasing industry-level scrutiny on water consumption. That’s a relevant consideration because some industries are more water-intensive than others.
“Further to this collaborative effort, we’re seeing signs that some asset managers are getting more specific about the kind of reporting and behavior they expect from companies on responsible water use. We see evidence of this in their policies for voting at shareholder meetings and engagement with companies on sustainability issues,” added Stewart.
To that end, PIO is pertinent because considering it’s an older incarnation of a thematic fund, it’s diverse at the industry level. Six sectors are represented in the ETF. That’s confirmation not only of diversification relative to other thematic strategies, but the broad-based approach necessary to capitalize on the burgeoning water investment thesis.
PIO allocates over 71% of its roster to industrial and utilities stocks, while healthcare and technology stocks combine for over 23% of the portfolio. Bottom line: Water is an established investment theme, as highlighted by PIO’s age, but it’s evolving, and PIO is up to the task of delivering for investors.
“Given the crucial importance of water to life and to business, we can expect that managers’ thinking on these issues will develop further post-COP 27 and be reflected in managers’ policy updates for 2023,” concluded Morningstar’s Stewart.
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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.