Time to Buy Water ETFs?

I've followed water stocks for five years now, starting before any water-focused funds or ETFs were available. Water is considered by some to be the "ultimate" commodity, since we literally cannot live without it, and there is a limited supply in the world. Some of the largest global players in water are European conglomerates like Veolia (VE). In the US, a handful of water stocks and utilities can be identified, such as ITT Corp (ITT) and Aqua America (WTR). Together, these water companies can be thought of as plays in commodities, utilities, or infrastructure.

The first water ETF was launched in late 2005. The PowerShares Water Resources Fund (PHO) was joined in mid-2007 by three more water ETFs: PowerShares Global Water (PIO), Claymore S&P Global Water (CGW) and First Trust ISE Water (FIW). Each is based on a different sector index so each offers unique stock and sector weightings. Recent new water indices may result in additional water ETFs soon (see article here).

All four of these funds suffered with the markets as a whole from August through November 2008. The funds focusing on US companies (PHO and FIW) have held up a bit better than the global funds, partly due to the anticipation for a favorable infrastructure policy in the next administration and partly due to the relatively poorer performance of overseas markets this year. All have similar P/Es in the range of 12-13, and CGW has the highest distribution yield, at 8.77% on 12/31/08.

12-month price chart of ETFs mentioned (click to enlarge):

PHO is the most widely held of the group, but I have held CGW since its inception, believing it to be the best global play. The biggest blue-chip global firms should benefit the most longer-term, as they are called on to manage the huge government-funded engineering projects in Asia, as well as in Europe and the US.

Disclosure: Author holds a long position in CGW

Comments

[redbaron:]

My favorite stock is Layne Christensen, LAYN, and none of these funds own LAYN in their top 10 holdings. Why not just buy the stock?

Jan 04 06:55 AM

[User 13958:]

LAYN is a high cyclical stock, so it would be better (to reduce risk) to look at other "water" stocks & ETFs to minimize volatilty.
Just my opinion.

Jan 04 09:18 AM

[Thomas Smic...:]

Either ETFs have benefits. I prefer PHO at this juncture because I believe that BHB/PE will authorize gazillions here faster than third world countries can muster in their part of the planet as a part of the "US Five Year Plan". PHO has the stocks in the sweet spot to benefit.

Do Five Year Plans work? Ask China and some die hard Soviets. But, I digress.

Jan 04 09:55 AM

[granger:]

Is there any direct play on water rights? Either through a stock or ETF

Jan 04 01:42 PM

[lblaine:]

PICO


On Jan 04 01:42 PM granger wrote:

> Is there any direct play on water rights? Either through a stock
> or ETF

Jan 04 03:24 PM

[Dan Lonowski:]

redbaron,
LAYN is held in PHO at around #15, with about 3% of its holdings. I liked LAYN in the past, but it was a trade for me, not an investment due to its volatility at that time.

granger,
There is another outfit in southern Calafornia that has as its sole business model the storage and release of underground water to LA, but its extremely speculative, sorry I can't think of the name now. PICO is a better option. Wish there were more!

Jan 04 08:58 PM

[dcb:]

iT WOULD BE NICE IF YOU EXPLAINED WHY YOU DONT LIKE PIO AND CHOOSE THE FUND YOU DID

Feb 01 06:47 AM

[dcb:]

OVER THE PAST THREE MONTHS PIO HAS MASSIVELY OUTPERFORMED

Feb 01 06:51 AM