Water scarcity is one of the biggest challenges of the 21st century and unlike lot of other commodities like metals, water is the single most important natural resource in the world.
Even though it is renewable and people are able to purify and clean water for many years now, the problem with water supply is mainly down to its extremely unequal distribution around the world. While some areas of the world are able to enjoy vast quantities of pure drinking water, it is not as commonplace elsewhere (especially Sub-Saharan Africa).
With the population rises in areas where there are huge water issues even now, this demand for fresh drinking water will only rise in the future and the commodity is often seen as the next oil or next gold of the coming decades.
It is almost a $400 billion market and makes great alternative investment to equities.
Water ETFs mostly invest in water through companies that monitor, manage and improve water supplies (like Siemens or 3M).
There are currently four popular Water ETF options out there for investors looking to benefit from this increasing demand-
- PowerShares Global Water Portfolio (PIO): This Water ETF is based on the Palisades Global Water Index. It focuses on companies that are working on the provision of potable water, its treatment and technology that relate to water consumption. Total assets of PIO ETF are about $372 million with an expense ratio of 0.75%. Major holdings are in Kemira Oyj, Organo, Stantec, Nalco and Suez Environment Company.
- PowerShares Water Resources Portfolio (PHO): PHO is the largest Water ETF with more than $1 billion in assets. It focuses on the same type of companies like the PIO ETF. It has an expense ratio of 0.79% and also tracks the Palisades Water Index. Major holdings are in Valmont industries, Aecom Technology, Nalco Holding and Lindsay Corp. PHO has a P/E ratio at 17.28.
- Guggenheim S&P Global Water Index ETF (CGW): This ETF corresponds to the S&P Global Water Index. This ETF is the first US listed global Water ETF. It has almost 90% of its assets in common stock and ADRs. It has a market capitalization of $254 million with an expense ratio of 0.65%. It has a total of 49 holdings with major stocks in Geberit AG, United utilities, Nalco Holding, Severn Trent PLC and American Water Works.
- First Trust ISE Water Index Fund (FIW): This ETF primarily focuses on companies with waste water and potable water direction. It is slightly smaller than the other three ETFs with a market capitalization of $70 million. It has an expense ratio of 0.69%. It has major holdings in Nalco Holding, Energy Recovery, Lindsay Corp, Watts Water Technologies and Pentair Inc. FIW has its P/E ratio at 18.13.