Trading more than 100,000 shares a day, the PHO fund is the most liquid ETF in the group and carries the lowest bid/ask spreads in the group, according to S&P’s Rosenbluth.
Even though the drought has dominated headlines in the U.S. in 2012, our country generally boasts a fairly healthy national water supply. Yet in Africa, the Middle East and Asia, rising populations and shrinking water supplies threaten to create social unrest unless spending rises on advanced technologies such as desalination.
Booz Allen estimates that $20 billion in global spending will be needed on water infrastructure through 2030.
That trend should play into the hands of the PIO fund, which has roughly 60% of its assets tied up in foreign water-related firms such as Switzerland’s Geberit, which makes various water and plumbing components, France’s Veolia Environment (VE), which designs, builds and operates a range of water treatment plants, and Finland’s Kemira, which helps industries efficiently manage their water resources.
PIO tracks the holdings of the Nasdaq OMX Global Water Index. Despite a heavy exposure to Europe, it has managed to rise 16% on a trailing twelve month basis.
The First Trust ISE Water Index fund (FIW) tracks the ISE Water Index. It’s been a long slog back to respectability for this fund, which launched at $20 a share in May 2007, plunged to just $11 in early 2009 as the global economy tanked, and now trades back up above $25.
FIW, which carries a 0.60% expense ratio, has a decidedly domestic focus. Its top holdings include Energy Recovery (ERII), a leading provider of desalination components, Mueller Water (MWA), which provides water-saving equipment to municipalities, and Lindsay Manufacturing (LNN), a maker of highly-efficient pivot irrigation systems used by farmers.
The First Trust fund has beaten its benchmark, the Russell 3000 index, on a one-year and five-year basis and has delivered 5% annualized gains since it was launched. Ryan Issakainen, senior vice president and ETF strategist at First Trust, attributes that performance to the broader infrastructure needs in the economy. “The big focus for many firms in the fund is on repairing aging municipal water systems, so drought or not, you’re seeing steady demand for these firms.”
Forget about past performance for these funds. The key issues driving the global water trends are just now deepening both here and abroad. That makes these ETFs very well-positioned to capitalize on the long-term trend of heightened fresh water scarcity.