Water ETFs as 2019 Rebound Plays
This article was originally published on ETFTrends.com.
Water stocks and sector-related exchange traded funds are following the broad market lower this year, but some of the funds have been less bad than bad than the broader industrial sector.
The First Trust ISE Water ETF (FIW) and Invesco Water Resources Portfolio (PHO) , which both track U.S. companies that derive their revenue from products that conserve and purify water, are sporting year-to-date losses which are well below those found on broader industrial ETFs.
Water investing is a good way to play a long-term trend as the world still needs to find sustainable sources of potable fresh water, especially with the specter of climate change. Some analysts believe water stocks can rebound in 2019.
“Many water stocks are trading well off their 52-week highs as they head into 2019, even though the industrial channel is on a strong upward trajectory that should last through the new year, while the municipal channel is back on a steady low-single-digit growth path, analyst Ryan Connors wrote in a note,” reports MarketWatch.
Solid Fundamentals
Water stocks and sector-related exchange traded funds have rallied this year as investors turned to more conservative utility plays, but the sector may still have legs as the world confronts increasing fresh water scarcity.
PHO, which is 13 years old and holds 35 stocks, tracks the NASDAQ OMX US Water Index. That index “seeks to track the performance of US exchange-listed companies that create products designed to conserve and purify water for homes, businesses and industries,” according to Invesco.
A rebound in the broader industrial sector, one of the worst-performing groups in the S&P 500 this year, could help water stocks.
“The industrial sector is in good shape with production rising 3.9% in November from the year-earlier period, according to government data, continuing a recent growth trend. At the same time, capacity utilization is at 78.5%, below the 80% threshold that suggests capital expansion, but the rate should improve if industrial growth continues, said Connors,” according to MarketWatch.
The average market value of PHO's holdings is $16.41 billion and over 43% of the ETF's components are classified as growth stocks. Eleven industry groups are represented in the fund at weights ranging from 2.74% to 28.51.
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