Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

With Water An Ever-More-Valuable Commodity, 2 ETFs To Dip Into

Published 24/08/2021, 09:01
Updated 02/09/2020, 07:05

We cannot survive without water. As a result of the increasing global population, climate change and the degradation of lakes and rivers, water resources are coming under pressure. In addition to scarcity, establishing and maintaining water systems typically requires significant capital investments. These factors have not gone unnoticed on Wall Street, which now regards water as an important commodity.

The 2021 edition of the United Nations World Water Development Report highlights:

Agriculture currently accounts for 69% of global water withdrawals, which are mainly used for irrigation but also include water used for livestock and aquaculture. This ratio can reach up to 95% in some developing countries… [T]he world would face a 40% global water deficit by 2030 under a business-as-usual scenario.”

Amidst such ecological challenges, market participants are seeking ways to invest in water, especially via exchange-traded funds (ETFs). US President Joseph Biden’s emphasis on modernizing infrastructure is also bringing attention to water utilities, as well as the technology to improve water infrastructure. Many analysts debate whether fresh water could eventually become the world’s most critical resource.

In recent months, we covered the Invesco Water Resources ETF (NASDAQ:PHO). So far in the year, PHO is up more than 24%. By comparison, the S&P 500 index returned 18.3% year-to-date (YTD). Today’s article discusses two more ETFs that could appeal to a number of investors.

1. First Trust Water ETF

Current Price: $89.27
52-Week Range: $57.59 - $89.55
Dividend Yield: 0.42%
Expense Ratio: 0.54% per year

The First Trust Water ETF (NYSE:FIW) invests in companies that generate a significant amount of their revenues from the potable and wastewater industry. The fund started trading in May 2020. Its net assets stand at $1.23 billion.

First Trust Water ETF Weekly Chart.

FIW, which tracks the returns of the ISE Clean Edge Water Index, currently has 36 stocks. About 42% of the fund is in the leading 10 names. In terms of sectors, industrials lead with 56.85%. Next are utilities (20.35%) and health care (13.18%).

Technology group Danaher (NYSE:DHR) whose products are used in life and environmental sciences; Pentair (NYSE:PNR), which focuses on filtration solutions and water quality systems; Agilent Technologies (NYSE:A), which offers instruments and software for the laboratory workflow; utility group American Water Works (NYSE:AWK); and IDEXX Laboratories (NASDAQ:IDXX), which provides products and services for water testing, are among the top names in the roster.

YTD, the fund has returned more than 23% and hit a record high in mid-August. It’s trailing P/E and P/B ratios of 33.63 and 4.42 point to an overstretched valuation level. A potential decline toward the $85 level or below would offer a better margin of safety.

2. Invesco S&P Global Water Index ETF

Current Price: $58.75
52-Week Range: $39.81 - $59.08
Dividend Yield: 1.33%
Expense Ratio: 0.57%

The Invesco S&P Global Water Index ETF (NYSE:CGW) invests in a range of global firms, including water utilities as well as those that focus on infrastructure, instruments, equipment and materials. Since its inception in May 2007, net assets have grown to $1.15 billion.

CGW, which tracks the returns of the S&P Global Water Index, has 58 holdings. In terms of sector allocation, industrials get the biggest slice with 48.51%, followed by utilities (42.12%) and information technology (6.45%).

Invesco S&P Global Water Index ETF Weekly Chart.

The top 10 holdings comprise about 57% of assets. Close to 55% of the businesses come from the U.S. Others are based in the UK (14.91%), France (9.23%), Switzerland (8.1%) and China (2.61%).

Among the largest stocks in the fund are American Water Works, manufacturer of pumping equipment Xylem (NYSE:XYL); Veolia Environnement (PA:VIE) (OTC:VEOEY), which offers environmental solutions with a focus on water; Switzerland-based plumbing supplies maker Geberit (OTC:GBERY); Pentair; and UK-based water utility group Severn Trent (OTC:STRNY).

CGW returned more than 25% YTD and 44% in the past year. Like FIW, it also hit a record high in recent days. Trailing P/E and P/B ratios are 23.58 and 3.56, respectively. Potential buy-and-hold investors would find better value around $55 or below.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.