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 posted a mixed performance compared to the broader market in the past year.
- The water ETFs with the best 1-year trailing total returns are PHO, PIO, and FIW.
- The top holdings of these ETFs are Danaher Corp. in the first two funds and Xylem Inc. in the third.
Compared to other types of ETFs, the water ETF universe is small, comprised of four funds, excluding inverse and leveraged ETFs, as well as ETFs with fewer than $50 million in assets. These ETFs do not invest in water rights as a commodity, and they have had a mixed performance relative the S&P 500 index, which posted a 1-year trailing total return of 9.7% as of October 28. The best-performing water ETF based on performance over the past year is the Invesco Water Resources ETF (PHO). We examine the top 3 water ETFs as measured by 1-year trailing total returns below. Except for the S&P 500 index's performance, all numbers in this story are as of October 30, 2020.
- 1-Year Trailing Total Returns: 11.2%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.44%
- 3-Month Average Daily Volume: 49,753
- Assets Under Management: $1.1 billion
- Inception Date: December 6, 2005
- Issuing Company: Invesco
The Invesco Water Resources ETF (PHO) is a multi-cap blended fund which 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. The top three holdings of the fund include Danaher Corp. (DHR), a designer and provider of professional, medical, industrial, and commercial products to a variety of sectors, including the environmental sector; American Water Works Company Inc. (AWK), a drinking water and wastewater utilities company; and Ecolab Inc. (ECL), a provider of water, hygiene, and energy technologies and services to various sectors.
- 1-Year Trailing Total Returns: 9.3%
- Expense Ratio: 0.75%
- Annual Dividend Yield: 0.91%
- 3-Month Average Daily Volume: 11,017
- Assets Under Management: $209.1 million
- Inception Date: June 13, 2007
- Issuing Company: Invesco
PIO is a multi-cap ETF that tracks that, like PHO, tracks the NASDAQ OMX Global Water Index. The ETF focuses on water utilities and infrastructure companies, as well as water equipment and materials companies. PIO offers targeted exposure to investors who may believe that scarcity issues may prompt a sudden, short-term increase in demand for water treatment companies, boosting the earnings and share prices of these companies. Thus, analysts say it may not belong in a longterm portfolio. The fund's top three holdings include: Danaher Corp.; Ecolab Inc.; and Geberit AG (GEBN), a maker and supplier of water supply pipes, fittings, drainage, and flushing systems.
- 1-Year Trailing Total Returns: 9.0%
- Expense Ratio: 0.55%
- Annual Dividend Yield: 0.54%
- 3-Month Average Daily Volume: 21,395
- Assets Under Management: $552.3 million
- Inception Date: May 11, 2007
- Issuing Company: First Trust
FIW is a multi-cap ETF that invests in U.S. equities of varying market caps. It tracks the ISE Water Index, which is primarily focused on companies that get a large share of their revenue from the potable and wastewater industry. The fund follows a blended strategy, investing in both growth and value stocks. The fund's top three holdings include: Xylem Inc. (XYL), a maker of water and wastewater pumps, valves, heat exchangers, and treatment and testing equipment; Algonquin Power & Utilities Corp. (AQN), a renewable energy generation company with water distribution and wastewater facilities; and Danaher Corp.