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How To Hydrate With A Water ETF

ETF Professor

Exchange traded funds dedicated to water-related investments may be some of the earliest examples of thematic ETFs, but due to lack of disruptive technology, or anything resembling “high tech,” water funds aren't considered glitzy investments.

There was a time, however, when water was considered the “new oil” due to scarcity issues and it is those scarcity issues that could renew interest in funds, such as the Invesco Global Water ETF (NASDAQ: PIO).

Now almost 13 years old, PIO is enjoying a solid showing in 2019 with a gain of 20%. The $195.2 million fund tracks the Nasdaq OMX Global Water Index.

Why It's Important

“Investors focused on climate change and sustainability often want 'water plays,' or stocks that benefit from the rising scarcity of water,” reports Barron's. “But not all water stocks are created equal. Investors have to be selective when buying exposure to water trends.”

Underscoring the point that it can be difficult to hone in on water investments, the industry is defined by a dizzying sub-industry groups. For its part, PIO features exposure to six sectors with industrial and utilities stocks combining for nearly 77% of the fund's weight.

That's a point worth mentioning because PIO is outperforming both the Industrial Select Sector SPDR (NYSE: XLI) and the Utilities Select Sector SPDR (NYSE: XLU) this year.

Despite those allocations to sectors that are often viewed as slow-moving, PIO does some have some growth traits as growth stocks represent nearly 40% of the fund's roster.

What's Next

The future of water investments very well lies with the ability of these companies to act less like stodgy utilities and more like purveyors of futuristic technologies, even if those technologies aren't glitzy by consumer standards. Just 3.68% of PIO's holdings officially reside in the tech sector.

Companies at the recent Aquatech Amsterdam 2019 conference “were showcasing some form of connected products and digital services, including real-time controls, remote monitoring, automated asset management, and predictive diagnostics and analytics,” Barron's quoted RBC analyst Deane Dray.

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