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, 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 underperformed the broader market over the past year.
- The water ETFs with the best 1-year trailing total returns are PIO, FIW, and CGW.
- The top holdings of these ETFs are Danaher Corp., IDEXX Laboratories Inc., and American Water Works Company 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 rights as a commodity. Water ETFs have significantly underperformed the S&P 500 index, which posted a 1-year trailing total return of 19.5% as of August 6. The best-performing water ETF, based on performance over the past year is the Invesco Global Water ETF (PIO). 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 August 8, 2020.
- 1-Year Trailing Total Returns: 14.1%
- Expense Ratio: 0.75%
- Annual Dividend Yield: 1.02%
- 3-Month Average Daily Volume: 10,649
- Assets Under Management: $207.3 million
- Inception Date: June 13, 2007
- Issuing Company: Invesco
PIO is a mult-cap ETF that tracks that NASDAQ OMX Global Water Index, which is comprised of companies that make products to conserve and purify water for homes, businesses and industries. The ETF focuses on water utilities and infrastructure companies, as well as water equipment and materials companies. This ETF offers targeted exposure to investors who may believe that scarcity issues may prompt a sudden, short-term increase in demand for water treatment companies. Thus, it may not belong in a longterm portfolio. As of August 8, the fund's top three holdings include: Danaher Corp. (DHR), a designer and provider of professional, medical, industrial, and commercial products to a variety of sectors, including the environmental sector; Geberit AG (GEBN), a maker and supplier of water supply pipes, fittings, drainage, and flushing systems; and Ecolab Inc. (ECL), a provider of water, hygiene, and energy technologies and services to various sectors.
- 1-Year Trailing Total Returns: 12.8%
- Expense Ratio: 0.55%
- Annual Dividend Yield: 0.49%
- 3-Month Average Daily Volume: 28,117
- Assets Under Management: $536.3 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 in the potable and wastewater industry. The fund follows a blended strategy, investing in both growth and value stocks. As of August 8, 2020, the fund's top three holdings include: IDEXX Laboratories Inc. (IDXX), a provider of diagnostic and information systems for veterinary, food, and water testing applications; Danaher Corp.; and Agilent Technologies Inc. (A), a provider of bio-analytical and electronic measurement services across a variety of industries.
- 1-Year Trailing Total Returns: 12.2%
- Expense Ratio: 0.62%
- Annual Dividend Yield: 1.50%
- 3-Month Average Daily Volume: 42,597
- Assets Under Management: $697.6 million
- Inception Date: May 14, 2007
- Issuing Company: Invesco
CGW is a multi-cap ETF that invests in water equities of varying market capitalizations in developed markets worldwide. It tracks the 50-company S&P 500 Global Water Index. The fund follows a blended strategy, investing in value and growth stocks of companies in the water industry, including water utilities, infrastructure companies, and water equipment and materials companies. As of August 8, 2020, the ETF's top three holdings include: American Water Works Company Inc. (AWK), a provider of drinking water, wastewater, and other water-related services; Xylem Inc. (XYL), a manufacturer and service provider for water and wastewater applications; and Danaher Corp.