Water ETFs Worthy of Consideration, but Be Choosy


Roughly two-thirds of the earth’s surface is covered in it and it’s essential to everyday life and commerce. All of that is to say water is critical and relevant from an investment perspective.

“From a thematic investment perspective, the supply/demand dynamics of water create opportunities for investments in utilities, infrastructure, and technology that increase the supply of safe freshwater and the reliability of that supply,” writes Morningstar analyst Jon Hale.

So it can be said that water ETFs also qualify as thematic ETFs – a point often overlooked because most water ETFs have lengthy track records and are old compared to other thematic funds. Additionally, water isn’t as sexy as some newer themes, such as fintech and genomics.

Still, with droughts afflicting densely populated parts of the U.S. and other major global economies, water investing is taking on amplified meaning and with that, comes the possibility of more relevant investment opportunities. For investors that don’t want to select individual water equities, the following ETFs could be worthy of examination.

First Trust Water ETF (FIW)

The First Trust Water ETF (FIW) follows the ISE Clean Edge Water Index and is one seasoned veterans of this ETF category as it turns 16 years old next May. This water ETF holds 36 stock and while that doesn’t scream “diversification,” the fund is surprisingly diverse as it provides exposure to six sectors.

That breadth is relevant because bolstering water resources and improving wastewater treatment is going to take participation from multiple companies across multiple industries.

“Water usage has risen six-fold in the last century,” reports Pippa Stevens for CNBC, citing Morgan Stanley. “But 2 billion people still lack access to safe drinking water, while 3.6 billion people don’t have safely managed sanitation. And water demand is forecast to rise by roughly 30% by 2050. Morgan Stanley noted that about $850 billion is spent every year on providing and maintaining water resources, but that this isn’t enough to meet global needs. Within that over-arching figure, about $300 billion is for capital expenditure.”

Ecofin Global Water ESG Fund (EBLU)

The Ecofin Global Water ESG Fund (EBLU) is a hidden gem among water ETFs as it doesn’t hail from the stable of major ETF issuer, but it’s a credible addition to this category because it employs standards to ensure some level of water investing purity and relevance.

EBLU member firms “must (i) derive at least 50% of their revenues from water industry related activities, or (ii) derive at least 40% of their revenues from the water industry, be ranked in the top five companies by total revenue derived from any one water sub-industry, and whose principal source of revenue comes from the water industry, “ according to the issuer.

EBLU, which follows the Ecofin Global Water ESG Net Total Return Index, employs an environmental, social and governance (ESG) scoring methodology that adds to the fund’s sustainability credentials. As such, EBLU sports an “AAA” grade from MSCI, which could increase the audience for the fund.

“Investments in water contribute to several of the United Nations Sustainable Development Goals, including clean water and sanitation; sustainable cities and communities; and responsible consumption and production,” adds Morningstar’s Hale.

Invesco Global Water ETF (PIO)

The Invesco Global Water ETF (PIO), which tracks the Nasdaq OMX Global Water Index, brings a pertinent global approach to a theme that is indeed very much global.

“Without it (water), the economy, ecosystems, and society at large can’t survive,” according to Morningstar research. “That makes access to water a sustainability issue for investors, writ large. Water risks, in their various forms, are pressing environmental, social, and governance challenges. Unlike fossil fuels, no alternatives to fresh water exist. As a result, our reliance on water poses not only critical challenges to the health of ecosystems but also to the operations of businesses, communities, and society.”

PIO is about 15 and a half years old, confirming it is battle-tested across multiple market settings.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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