Invest in this precious resource. Increasing droughts and floods in recent years have led to disparities in access to water, causing concern to investors who are diversifying their portfolios with stocks or exchange-traded funds. “The…
Invest in this precious resource.
Increasing droughts and floods in recent years have led to disparities in access to water, causing concern to investors who are diversifying their portfolios with stocks or exchange-traded funds. “The conversation around water as an increasingly scarce resource grows louder and intrepid investors will likely want to capitalize on,” says Rich Messina, senior vice president of investment product management of E-Trade, a New York-based brokerage firm. According to findings by the United Nations Office for Disaster Risk Reduction, 90 percent of all natural disasters are water related, while water scarcity affects four out of 10 people. Here are seven ways to invest in this precious resource.
American Water Works is a public utility company that provides drinking water and wastewater to more than 14 million people in 46 states and the Canadian province of Ontario. Christopher Muir, an analyst for CFRA, wrote in a February report that the stock has a price target of $100 with earnings per share “growth aided by customer acquisitions and higher rates as well as rising earnings from the market-based businesses.” He predicts that AWK’s revenue will rise by 5.3 percent in 2019 and 5.5 percent in 2020 compared to 2.5 percent in 2018. “We see rate increases, customer growth and customer acquisitions helping revenues in both years,” Muir said in his report.
Aqua America, a Pennsylvania-based water and wastewater utility company, is a top idea in the space, says Ryan Connors, managing director of water and environmental equities at research firm Boenning & Scattergood. “We believe the company offers superior growth at a discount valuation. In addition, we see Aqua America’s pending $4.3 billion acquisition of Peoples Gas, a natural gas distribution company, as a visionary strategic move that is in step with the broader trend toward multi-utilities.” Boenning & Scattergood has a price target of $43.
The Invesco Water Resources ETF is based on the Nasdaq OMX US Water Index and focuses on U.S.-based companies that create products designed to conserve and purify water for homes, businesses and industries. Messina says the Invesco Water Resources ETF gives investors exposure to the clean water sector. The management fee is 0.5 percent and the total expense ratio is 0.62 percent. Its 52-week high is $33.84 and the 52-week low is $26.46.
Founded in 2007, First Trust Water ETF holds 36 stocks and is based on the ISE Clean Edge Water Index, a modified market capitalization-weighted index comprised of companies that derive a substantial portion of revenue from the potable and wastewater industry. The top holdings include Danaher (DHR), Agilent Technologies (A), American Water Works and Ecolab (ECL). FIW manages more than $300 million in assets and its exposure includes 52 percent in the industrials sector, 23 percent in the utilities sector and 12 percent in the health care sector. The net expense ratio is 0.56 percent.
Using a passive management approach, TBLU seeks investment results that correspond generally to the price and distribution rate performance of the Tortoise Global Water ESG Net Total Return Index, which consists of global companies throughout the water cycle that are positioned to benefit from the pursuit of solving the water supply and demand imbalance. These companies must derive at least 50 percent of revenue from water industry-related activities or at least 40 percent of revenue from the water industry along with a couple of other requirements, such as being ranked among the top five companies by total revenue derived from any one water subindustry and having water as the company’s principal source of income.
PIO follows the Nasdaq OMX Global Water Index, investing mostly in global large-cap growth water industry stocks with companies that focus on conserving and purifying water for homes, businesses and industries. While its portfolio is mainly dominated by U.S. companies, PIO includes European water stocks. The top 10 holdings include Ecolab and Geberit AG (GBERF). This ETF ranks above average for sustainability based on Morningstar’s rating. “The global demand for clean water is expected to outpace accessible supply within the next few decades,” says Evan Kulak, co-founder of Polaris Portfolios, a financial planning firm. “Investors looking to capitalize on potential future water scarcity can invest in everything from water rights, farmland, pipelines, utilities to infrastructure.”
Invesco offers two ETFs: CGW tracks the S&P Global Water Index while PIO tracks the Nasdaq OMX Global Water Index. PIO’s expense ratio of 0.75 percent is slightly more expensive than CGW’s expense ratio at 0.6 percent. Both of these ETFs track U.S. large-cap companies and similar indexes with slight variations, Kulak says. Roughly half of CGW’s holdings are companies in the U.S., but holdings in other countries, such as the U.K., France and China, are represented. The top 10 holdings include American Water Works, Xylem (XYL) and Danaher. Its 52-week high is $35.52 and the 52-week low is $29.76.
Consider water investments for your portfolio.
To review, here are a few ETFs and stocks for water investing: