There’s a spotlight on the state of U.S. infrastructure, and the Biden administration has embarked on a massive federal spending spree to improve aging roads, bridges, electrical grids and rail systems.
A major part of this spending is for water infrastructure, which affects the systems handling the water we drink and use for sanitation and the management of storm runoff. By delivering more than $50 billion to the U.S. Environmental Protection Agency, the Bipartisan Infrastructure Law represents the single biggest federal investment in water ever.
That leaves plenty of room for individual investors to get exposure to the companies that will make these infrastructure improvements.
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“The water sector presents a significant opportunity due to evolving regulations and the introduction of new technologies,” says Deiya Pernas, co-founder of Pernas Research in San Juan, Puerto Rico.
Wall Street has taken notice, and the number of water-related exchange-traded funds, or ETFs, has proliferated. According to ETF Database, there are seven of them trading in the U.S. with combined assets under management of more than $5 billion.
While ETFs offer instant diversification with multiple stocks under one ticker symbol, there can also be advantages to owning individual stocks, including the potential for outperformance if a single company starts doing better than the group as a whole.
With that in mind, let’s take a look at some of the best water stocks and ETFs:
| Water Stock/ETF | One-year return* |
| American Water Works Co. Inc. (ticker: AWK) | -20.8% |
| Essential Utilities Inc. (WTRG) | -19.8% |
| Global Water Resources Inc. (GWRS) | -0.5% |
| Consolidated Water Co. Ltd. (CWCO) | 43.5% |
| Invesco Water Resources ETF (PHO) | 24.4% |
| First Trust Water ETF (FIW) | 21.7% |
| Invesco S&P Global Water Index ETF (CGW) | 10.5% |
*By market price as of April 11.
American Water Works Co. Inc. (AWK)
Pernas likes this water company and thinks it will keep growing its dividend at about 10% with capital expenditure projects and acquisitions that end up creating more value from combined companies than they could fetch separately.
As the largest listed water and wastewater utility in the U.S., American Water Works provides drinking water and wastewater services to more than 14 million people, with regulated operations in 14 states and on 18 military installations.
In addition to providing services to residences, public buildings, and commercial and industrial businesses regardless of what the economy is doing, the company’s long-term military contracts also provide stability.
With a market capitalization of about $23 billion, the company is one of the largest of any type of utility stock and is bigger than some of the better-known electricity providers.
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Essential Utilities Inc. (WTRG)
Essential Utilities operates similar water and wastewater infrastructure to American Water Works but also has natural gas-related services in the U.S.
Its wastewater and water utility business serves more than 3 million people in eight states.
In October, the company sold its West Virginia natural gas assets “to prioritize growth of its water and wastewater utilities in states in which it has scale.” In January, it sold microgrid and district energy properties so it could use the funds for capital expenditures and water and wastewater acquisitions.
Meanwhile, the company’s energy unit still provides natural gas service to customers in Pennsylvania and Kentucky.
This layer of diversification dilutes what would otherwise be a direct play on water, but that may be appealing to some investors who want to hedge their bets a bit with natural gas, which is a bridge fuel in the transition to renewable energy.
Global Water Resources Inc. (GWRS)
This pure-play water resource management company owns and operates 29 systems that provide water, wastewater and recycled water services to utilities operating in communities around metropolitan Phoenix and Tucson, Arizona.
This footprint positions the company in areas that have experienced some of the fastest population growth in the U.S., expanding the need for its water services.
Global Water Resources processes more than 1 billion gallons of water each year and distributes the recycled water. That capability and its active mergers and acquisitions program may bode well for the company as developers of new subdivisions will have to turn to recycled or imported water in addition to supplies from underground water.
Consolidated Water Co. Ltd. (CWCO)
In water research, desalination, recovery and reuse are perennial themes, according to Peter Earle, senior economist with the American Institute for Economic Research.
“There are always firms around the world looking to improve the efficient reclamation and purification of water,” he says.
Consolidated Water is a seawater desalination company that has a water utility that supplies drinking water to two of the three most populated areas on Grand Cayman Island. It has long-term contracts with government utilities in the Cayman Islands, the Bahamas and the British Virgin Islands, giving it exposure to the tourism industry in the Caribbean.
In addition to water-related products, the company also designs, constructs, sells, operates and manages water infrastructure.
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Invesco Water Resources ETF (PHO)
Investors who want to go the ETF route, either in lieu of individual stocks or in addition to them, can consider this fund.
With more than $2.1 billion in assets under management, this is the biggest water ETF trading in the U.S., according to ETF Database. The fund invests in companies that create products that conserve and purify water for homes, businesses and industries.
PHO has an expense ratio of 0.6%, or $60 in annual fees on an investment of $10,000.
First Trust Water ETF (FIW)
With more than $1.6 billion, this ETF comes in at No. 2 in terms of assets under management.
With a 0.53% expense ratio, the fund tracks an index of companies that derive a substantial portion of their revenues from the potable and wastewater industry.
FIW contains a healthy allotment of utilities, which are generally considered defensive plays. When growth stocks like tech companies are going gangbusters, and investors have lots of risk appetite, these companies aren’t going to perform as well.
But investors will appreciate their steadying effect during an economic downturn. After all, people are going to need to drink water and take showers regardless of economic conditions.
To help balance things out, the fund also has a large percentage of industrial stocks. These types of companies tend to do better when the economy is performing well, or is expected to.
Invesco S&P Global Water Index ETF (CGW)
With around $980 million in assets under management, this ETF rounds out the top three in terms of size. It has an expense ratio of 0.56%.
Water is a global issue, and this ETF offers exposure outside the U.S. Although the U.S. is the biggest country allocation in the fund, it also holds securities from the U.K., Switzerland, Saudi Arabia, Brazil, Canada and other developed markets.
This fund tracks the S&P Global Water Index by investing at least 90% of its total assets in the American and global depositary receipts that make up the index.
The securities in the index include those of water utilities as well as companies involved in water-industry infrastructure, equipment, instruments and materials.
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7 Best Water Stocks and ETFs to Buy originally appeared on usnews.com
Update 04/12/24: This story was previously published at an earlier date and has been updated with new information.
