Best Water ETFs for Q4 2021


Water is one of the planet’s most coveted and widely used resources. Like other commodities, such as oil and gold, water assets can add significant diversification to any portfolio.

One of the best ways to gain exposure to the water industry is through a water exchange-traded fund (ETF). These ETFs invest in companies involved in the treatment and purification of water, as well as its distribution. Some notable names include Germany-based BASF SE (BAS.DE), 3M Co. (MMM), and ITT Inc. (ITT). As an essential commodity, water ETFs are often used as a defensive position in a portfolio. However, to the extent that water scarcity becomes a growing threat, these ETFs could be a significant offensive play as well.

Compared to other types of ETFs, the water ETF universe is small, comprised of 5 funds that trade in the U.S., excluding inverse and leveraged ETFs, as well as ETFs with fewer than $50 million in assets. These ETFs do not invest in water as a commodity or in water rights, but focus on water resources companies. Water ETFs have historically performed well, often even outperforming relative to the S&P 500, which posted a 1-year trailing total return of 40.9% as of Dec. 1, 2021. The best-performing water ETF based on performance over the past year is the Invesco S&P Global Water Index ETF (CGW). We examine the best 3 water ETFs as measured by 1-year trailing total returns below. All numbers below are as of Dec. 1, 2021.

Key Takeaways

  • Water ETFs have outperformed compared to the broader market in the past year.
  • The water ETFs with the best 1-year trailing total returns are FIW, PHO, and CGW.
  • The top holdings of these ETFs are Danaher Corp., Waters Corp., and American Water Works Company Inc., respectively.

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  • 1-Year Trailing Total Returns: 51.6%
  • Expense Ratio: 0.54%
  • Annual Dividend Yield: 0.39%
  • 3-Month Average Daily Volume: 90,075
  • Assets Under Management: $1.5 billion
  • Inception Date: May 8, 2007
  • Issuing Company: First Trust

FIW is a multi-cap ETF that invests in a blend of value and growth stocks. It tracks the ISE Clean Edge Water Index. The index is comprised of exchange-listed companies deriving a substantial portion of their revenue from the potable and wastewater industry. They are selected according to market cap, liquidity, and other requirements. The fund’s top three holdings include Danaher Corp. (DHR), a designer and provider of professional, medical, industrial, and commercial products; Agilent Technologies Inc. (A), a maker of analytical instruments; and Pentair plc (PNR), a water treatment company incorporated in Ireland.

  • 1-Year Trailing Total Returns: 49.3%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: 0.23%
  • 3-Month Average Daily Volume: 152,761
  • Assets Under Management: $2.0 billion
  • Inception Date: Dec. 6, 2005
  • Issuing Company: Invesco

PHO is a multi-cap blended fund that targets the Nasdaq OMX US Water Index. The index tracks U.S.-listed companies that create products to conserve or purify water. As such, PHO holds companies ranging from water utilities to infrastructure as well as materials and water equipment businesses. Machinery stocks, the largest share of PHO’s portfolio, comprise nearly a third of assets, while water utilities and life sciences tools and services companies are the second- and third-largest areas, respectively. The top three holdings include Waters Corp. (WAT), an analytical laboratory instrument and software company; Danaher Corp.; and American Water Works Company Inc. (AWK), a water public utility company.

The $1.2 Trillion Infrastructure Investment and Jobs Act, signed into law by President Joe Biden on Nov. 15, 2021, marks the largest investment in clean drinking water and wastewater infrastructure in American history. It includes $55 billion in dedicated funding to replace all of the nation’s lead pipes and service lines and to clean up dangerous chemicals.

  • 1-Year Trailing Total Returns: 45.59%
  • Expense Ratio: 0.57%
  • Annual Dividend Yield: 1.1%
  • 3-Month Average Daily Volume: 83,498
  • Assets Under Management: $1.2 billion
  • Inception Date: May 14, 2007
  • Issuing Company: Invesco

CGW is a multi-cap blended fund that tracks the S&P Global Water Index. The index is comprised of a portfolio of companies from developed markets representing water utilities, infrastructure, equipment, instruments, and materials. The large majority of CGW’s portfolio represents either industrial or utilities companies. The top holdings of CGW include American Water Works Company Inc.; Xylem Inc. (XYL), a water technology provider to residential, commercial, industrial, and agricultural clients; and Veolia Environnement SA (VIE:PAR), a France-based water and waste management and energy services company.

The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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