ETF Pick of the Week: Claymore S&P Global Water

Here's my ETF pick of the week: Claymore S&P Global Water (CGW)

You don’t have to look far to see evidence that water resources are scarce. More than 40% of America is experiencing abnormally dry to drought conditions, according to the U.S. Drought Monitor. Water shortages could mean a boon for companies engaged in water treatment, equipment, technology and services. There are also huge opportunities abroad. Water levels in many of China’s reservoirs are already dangerously low and China’s water technocrats are scrambling to build pipelines, canals, and water tunnels farther into rural areas. Beijing itself, with a population that has exploded from 2 million in 1948 to 18 million today, is slowly sinking.

Reasons for Selection:

1) While oil grabs most of the media’s attention as the primary global supply concern, it won’t be long before many realize that water is more enduring problem.

2) CGW has a more global presence than the PowerShares Water Resources ETF (PHO). The Claymore S&P Global Water ETF has roughly a 1/3 weighting to U.S. companies and a 2/3 weighting to foreign companies. Over time, this will be a bonus since there are plenty of overseas opportunities and competitive foreign water multinationals. In addition, The Claymore S&P Global Water Index ETF tracks an index that is distributed equally between two distinct clusters of water-related businesses: water utilities and infrastructure, and water equipment and materials.

3) The S&P Global Water Index follows the more traditional market-cap weighted approach. This is an advantage since it will take some financial heft for a company to grab big international water projects.

Catalyst: CGW is down 10% this year and this provides an attractive entry point.

Tip: If you are looking for a water ETF more oriented to American companies, go with the PowerShares Water Resources (PHO).

Comments

[Alan Young:]

The correct comparison is not with PHO, but with PIO, which is even more global in outlook.

Most of the companies in PIO are Euro-based, making it even cheaper.

2008 Sep 02 02:42 PM