ETF Talk: Water Offers Untapped Opportunity

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

As we prepare for the summer heat, water presents a significant investment opportunity — especially as states like California and Texas face the droughts associated with an unseasonably warm winter. The PowerShares Water Resource Exchange-Traded Fund (PHO) presents one way to invest in water’s untapped potential. The fund dipped understandably during the winter months, but has begun to rise as the weather gets warmer. The rising price of water is likely to continue through the summer months.

After beginning the year at $17.19, PHO has climbed slowly throughout the year and ended trading yesterday at $18.40. If water prices keep ascending, an investment in PHO would offer a way to profit.

The PowerShares Water Resource Portfolio (PHO) seeks to track the performance of U.S. exchange-listed companies that create products designed to conserve and purify water for homes, businesses and industries. The fund is widely invested, and its holdings are divided among the following sectors: Industrials, 57.71%; Utilities, 25.80%; Health Care, 7.71%; Information Technology, 5.77%; and Materials, 3.01%. The fund’s diversity provides a measure of stability, even though PHO’s fate is tied closely to that of water.

PHO’s top five holdings as of May 8, are American Water Works Co Inc (AWK), 8.07%; Waters Corporation (WAT), 7.71%; Flowserve Corporation (FLS), 7.65%; Pall Corporation (PLL), 7.40%; and ITT Corporation (ITT), 7.23%. All five of these holdings are performing reasonably well, year-to-date, and are expected to improve into the summer.

PHO is appealing for several reasons. First, water usage is growing rapidly. The UN reported “water usage has been growing at more than twice the rate of population increase in the last century.” In addition, the fund is widely invested in the water market, having holdings in filtration companies, treatment utilities, and pipe manufacturers.

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