PowerShares’ New Water ETF: Increased International Exposure

The world of water investment is getting crowded. Wednesday, PowerShares launched five new international equity ETFs, one of which is PowerShares Global Water Portfolio (PIO), one month after two offerings from Claymore Securities and First Trust Advisors. The new water ETF tracks the Palisades Global Water Index [PIIWI]. According to AMEX,

The Palisades Global Water Index is a modified equal-dollar weighted index comprised of companies worldwide that are engaged in the water industry. The benchmark Index includes international companies traded on major stock exchanges around the world. The component companies are positioned to benefit from the rapidly accelerating water resource challenges associated with the demands of growing world economies in conjunction with human health and ecological sustainability.

PIIWI is rebalanced on a quarterly basis in March, June, September, and December. Currently, the index consists of 41 stocks from 14 countries and regions such as China, Finland, France, Germany, Hong Kong, Italy, Japan, the Netherlands, Singapore, South Korea, Spain, Switzerland, the United Kingdom and the United States.

According to the fund’s prospectus, PIO invests at least 90% of its total assets in stocks that comprise the Palisades Global Water Index and ADRs based on the stocks in the index. The fund seeks a 0.95 or better correlation over time between the fund and the underlying index.

Before the introduction of PIO, PowerShares already has one successful water ETF, PowerShares Water Resources Portfolio (PHO), which is based on the Palisades Water Index [ZWI]. Comparing to ZWI, PIIWI has more international exposures than ZWI, though the two share quite some common components, including

Agilent Technologies (A)

Aqua America (WTR)

Danaher Corp (DHR)

General Electric (GE)

Itron Inc (ITRI)

ITT Industry (ITT)

Nalco Holding Co. (NLC)

Pentair, Inc (PNR)

Watts Water Technologies (WTS)

SUEZ France (LYOE.PA)

Tetra Tech (TTEK)

Valmont Industries Inc. (VMI)

Veolia Environnement (VIE)

Following is a chart that compare the 5-year performance of PIIWI and ZWI. Clearly, the extraordinary growth of international stock markets in recent years has given PIIWI some boost in performance.

And at an expense ratio of 0.75, PIO is not much more expensive than PHO, which has an ER of 0.67%. I currently own PHO and am quite happy with its performance (YTD return 9.81%, one-year return 29.97%) . However, it seems to me that despite PHO’s proven record in water investment, it will not only face competitions from funds like First Trust ISE Water Index Fund (FIW) and CLAYMORE ETF TRUST 2 (CGW), but from its in-house rival PIO as well .