danno

Investors Drink in Water ETFs

Typical No-nothing column on ETFs from Seeking Alpha. Most of the stocks in the water ETFs suck, or have little to do with water. Nearly all the water companies that are any good are only small parts of big conglomerates. The remaining public companies are only a small part exposed to water or are lousy companies that can't even earn their cost of capital. If you think you are getting an investment that's a good play on water shortages, need for purification, guess again. Caveat Emptor!

HSBC Wades Into Water Index Market; Investment Products to Follow

I wonder if this will be any better than the piece of trash Climate Change Index that HSBC developed. Read the methodology behind that one - it's good for a laugh (until you realize all the morons who put money into structured products that track that Index). For all the work HSBC does, it's work is really shoddy. HSBC's Climate Change Centre of Excellence - smart people developing stupid products (well smart for HSBC to make money, stupid in terms of being a bad product for investors with little intellectual rigor or quality).

Investing in Water and Water ETFs

Well, again what is the Index trying to reflect. If it's the global demand for more water and clean water, then you're not really getting that much exposure, but it's a nice marketing theme.

The phenomenon which the index is trying to reflect is poorly captured. In other words, the index performance will have a sub-par correlation with what it's 'trying' to track.

In addition this ETF grew so fast (nice idea in theory and easily marketable) that its huge growth in in assets drove up many stock prices that invested in. A self-fulfilling prophecy not unlike some of the wilderhill funds (much worse than this one)

Millipore? if you really look close at it's business, it's mostly in filtration for biomed/pharma/semicond... And a lot of what it's filtering isn't water.

Agilent, Emerson? water's a tiny percentage of their businesses. Roper? Maybe one third. Pall? Maybe 20%. Siemens and GE? Tiny.

The Index is nice in theory, but runs out of steam pretty quick.

Moreover, what the heck kind of weighting strategy is being used here? Look at the percentage of the float of some of these companies. Good luck at rebalancing time when Index Advisor has to annouce 5 days in advance what the rebalanced holdings will be. It's a field day for hedge funds and arbs at shareholder expense.

Investing in Water and Water ETFs

John: many are including GE, Veolia, Siemens, etc. but desal requires a lot of energy - which isn't exactly getting cheaper. That's why the much of desal system sales goes to countries where energy is cheap like North Africa and the middle east.

Investing in Water and Water ETFs

my bad, somehow that got mixed up with Franklin Electronic Publishing (FEP), still there are plenty of other questionable stocks in that index.

Investing in Water and Water ETFs

With all due respect, I would recommend that the author spend some time kicking the tires on these ETFs, learning about ETF mechanics, the companies in these ETFs, and in particular, the Index advisors. An investor who has really done his/her homework would never go near PHO (for example). Many of the companies in PHO have little significant business in water (Millipore? Franklin Electric? Agilent? Give me a break). This is no way to play the global thirst for more fresh water and cleaner water.

And water utilities? Good luck for them trying to raise water prices (even when rate increases are sorely needed) - that's been a disaster worldwide with terrible returns on capital. Some of the other companies are just 3rd-rate manufacturers with no pricing power whatsoever getting killed by high metal prices.

And even many of those in the water biz are highly suspect. How much earnings/revenues does GE get from its water biz - 10% max? Why would anyone think that the performance of the GE's water biz be a significant driver of GE's stock price –same for many others like Siemens.

ETFs like PHO are just gimmick products thrown together with to make money, but don’t really follow the purported investment theme. Apparently the $2.1 billion in PHO suggest that the average small investor or retail investment advisor haven’t done enough homework to know that the index manager has little idea what he/she is doing. Many ETFs such as those supposedly investing in “alternative energy’, ‘nanotech’, and ‘water’ sounds good in theory, but a little homework shows that index quality varies wildly. If you want to invest in water - this is not the way to do it.

The latter two ETFs on the list look a better –but I haven’t done enough due diligence on them. Remember: the water sector is a tough one in which to invest (most of the best companies are buried inside big conglomerates. As such the remaining pure-play water companies are typically pretty lousy while the water utilities typically struggle to earn their cost of capital.