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I have been interested in PowerShares Water Resources Portfolio (PHO) since it started trading last year, and became more interested recently, when I learned it has been trading with a negative correlation to utilities.

Utilities are a major portfolio holding and they seem too high to me right now. I have been looking for a good excuse to establish an initial position in PHO as a hedge and as an investment in its own right. PHO’s 50 day moving average just crossed above the 200 while both are rising, the so-called “Golden Cross”. So the major trend has turned up and this may be a a good time to invest for the long haul, although PHO is no blue-light special. It is only trading about 6% below the all-time high of 18.969 reached last May.

World water demand is surging due to rising population trends. Many booming economies are already experiencing critical water shortages. Over time, the cost of water must rise to ration supplies. Much money will be made in the discovery, production, purification, distribution, recycling, and sale of water. PHO is a perfect vehicle to invest in the water theme. This is as close to a no-brainer as I have seen for a while.

The PowerShares Water Resources Portfolio is based on the Palisades Water Index. The Index seeks to identify a group of companies that focus on the provision of potable water, the treatment of water, and the technology and services that are directly related to water consumption. The modified equal weighted portfolio is rebalanced and reconstituted quarterly. The underlying index would have dramatically outperformed the S&P500 and the DJIA during the last eight years, but it is much less volatile, with a beta of .68. Of course the underlying index is not subject to fees and expenses, PHO’s portfolio does not exactly match the index, and past performance is no guarantee of future results.

PHO has an expected dividend yield of .78% and an expense ratio of .60. The fund’s current holdings listed by sector can be viewed here.

Note that this ETF invests in foreign as well as domestic equities.  I am happy to welcome PHO to my portfolio and I expect good things of it.

Disclosure: Author is long PHO

Source: Water Resources ETF Negatively Correlated to Utilities