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 underperformed compared to the broader market in the past year.
- The water ETFs with the best 1-year trailing total returns are FIW, PHO, and CGW.
- The top holdings of these ETFs are Advanced Drainage Systems Inc., Waters Corp., and Xylem Inc., respectively.
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 as a commodity or in water rights, but focus on water resources companies. These funds have underperformed relative to the S&P 500, which posted a 1-year trailing total return of 29.4% as of March 3, 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. Except for the S&P 500 index's performance above, all numbers in this story are as of March 5, 2021.
- 1-Year Trailing Total Returns: 25.0%
- Expense Ratio: 0.55%
- Annual Dividend Yield: 0.53%
- 3-Month Average Daily Volume: 52,475
- Assets Under Management: $770.3 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 Clean Edge Water Index. The index is comprised of exchange-listed companies deriving a substantial portion of their revenues from the potable and wastewater industry. They are selected according to market cap, liquidity, and other requirements. The fund follows a blended strategy, investing in both growth and value stocks. The fund's top three holdings include Advanced Drainage Systems Inc. (WMS), a producer of drainage products including corrugated pipes; Valmont Industries Inc. (VMI), a maker of irrigation equipment, utility poles, and windmill support structures; and AECOM (ACM), an infrastructure engineering firm.
- 1-Year Trailing Total Returns: 22.5%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.38%
- 3-Month Average Daily Volume: 94,897
- Assets Under Management: $1.4 billion
- Inception Date: December 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. The top three holdings of the fund include Waters Corp. (WAT), a provider of laboratory equipment and software; Danaher Corp. (DHR), a designer and provider of professional, medical, industrial, and commercial products to a variety of sectors, including the environmental sector; and Ecolab Inc. (ECL), a provider of water, hygiene, and energy technologies and services to various sectors.
- 1-Year Trailing Total Returns: 14.4%
- Expense Ratio: 0.59%
- Annual Dividend Yield: 1.40%
- 3-Month Average Daily Volume: 60,767
- Assets Under Management: $843.6 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. . CGW holds about 52 positions, with the 10 largest accounting for more than half of invested assets. The top holdings of CGW include Xylem Inc. (XYL), a water technology provider to residential, commercial, industrial, and agricultural clients; American Water Works Company Inc. (AWK), a water public utility company; and Veolia Environnement SA (VIE:PAR), a France-based water and waste management and energy services company. The expense ratio in the table above comes from Invesco's website, while the other data in the table come from ETFdb.com.
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