Water is one of the planet's most coveted and widely used resources. Like other commodities, such as oil and gold, water assets can add significant diversification to any portfolio. One of the best ways to gain exposure to the water industry is through a water exchange-traded fund (ETF). These ETFs invest in companies involved in the treatment and purification of water, as well as its distribution. Some notable names include Germany-based BASF SE (BAS.DE), 3M Co. (MMM), and ITT Inc. (ITT). As an essential commodity, water ETFs are often used as a defensive position in a portfolio. To the extent that water scarcity becomes a growing threat, these ETFs could be a significant offensive play as well.
- Water ETFs have outperformed compared to the broader market in the past year.
- The water ETFs with the best 1-year trailing total returns are FIW, CGW, and PHO.
- The top holdings of these ETFs are Pentair plc, American Water Works Company Inc., and Roper Technologies Inc., respectively.
Compared to other types of ETFs, the water ETF universe is small, comprised of 4 funds that trade in the U.S., excluding inverse and leveraged ETFs, as well as ETFs with fewer than $50 million in assets. These ETFs do not invest in water as a commodity or in water rights, but focus on water resources companies. These funds have outperformed relative to the S&P 500, which posted a 1-year trailing total return of 41.0% as of May 28, 2021. The best-performing water ETF based on performance over the past year is the First Trust Water ETF (FIW). We examine the top 3 water ETFs as measured by 1-year trailing total returns below. Numbers for the first two funds below are for May 30, and numbers for the third fund are for May 31, 2021.
- 1-Year Trailing Total Returns: 51.1%
- Expense Ratio: 0.54%
- Annual Dividend Yield: 0.47%
- 3-Month Average Daily Volume: 59,434
- Assets Under Management: $985.8 million
- Inception Date: May 8, 2007
- Issuing Company: First Trust
FIW is a multi-cap ETF that invests in a blend of value and growth stocks. It tracks the ISE Clean Edge Water Index. The index is comprised of exchange-listed companies deriving a substantial portion of their revenue from the potable and wastewater industry. They are selected according to market cap, liquidity, and other requirements. The fund's top three holdings include Pentair plc (PNR), an American water treatment company incorporated in Ireland; Roper Technologies Inc. (ROP), a maker of industrial solutions including pumps and fluid handling systems; and Xylem Inc. (XYL), a water technology provider to residential, commercial, industrial, and agricultural clients.
- 1-Year Trailing Total Returns: 47.5%
- Expense Ratio: 0.57%
- Annual Dividend Yield: 1.24%
- 3-Month Average Daily Volume: 71,275
- Assets Under Management: $930.9 million
- Inception Date: May 14, 2007
- Issuing Company: Invesco
CGW is a multi-cap blended fund that tracks the S&P Global Water Index. The index is comprised of a portfolio of companies from developed markets representing water utilities, infrastructure, equipment, instruments, and materials. The large majority of CGW's portfolio represents either industrial or utilities companies. The top holdings of CGW include American Water Works Company Inc. (AWK), a water public utility company; Xylem; and Veolia Environnement SA (VIE:PAR), a France-based water and waste management and energy services company.
- 1-Year Trailing Total Returns: 46.4%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.32%
- 3-Month Average Daily Volume: 97,797
- Assets Under Management: $1.6 billion
- Inception Date: Dec. 6, 2005
- Issuing Company: Invesco
PHO is a multi-cap blended fund that targets the Nasdaq OMX US Water Index. The index tracks U.S.-listed companies that create products to conserve or purify water. As such, PHO holds companies ranging from water utilities to infrastructure as well as materials and water equipment businesses. Machinery stocks, the largest share of PHO's portfolio, comprise more than a third of assets, while water utilities and industrial companies are the second- and third-largest areas, respectively. The top three holdings include Roper Technologies; Xylem; and Danaher Corp. (DHR), a designer and provider of professional, medical, industrial, and commercial products to a variety of sectors, including the environmental sector.
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