How to Invest in Water (Water ETFs Review)
Climate change is making droughts more frequent, and access to clean water is critical. At the same time, the global water infrastructure is aging. Are there ways for you to invest in the future of water? Read to find out.
SustainFi June 10, 2021
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Why should you invest in water?
As the Earth warms, droughts are becoming more frequent, limiting the supply of drinking water. But demand is growing as the global population expands. The United Nations predicts that half the global population could lack safe drinking water by 2025. Meanwhile, global water infrastructure is aging and desperately needs to be upgraded.
Likely future water shortages create an opportunity for water infrastructure and technology companies. Water utilities also provide a critical social service, which makes them attractive for socially responsible investors. These safe stocks reliably pay dividends.
The exchange-traded funds (ETFs) we’ve profiled here invest in companies that focus on water purification, distribution of clean drinking water, and infrastructure that includes water processing plants.
The top five water ETFs
One of the best ways to invest in water is by buying ETFs. There are dozens of individual companies in this space, but only five water ETFs. Each of these funds has been rated for environmental, social, and governance (ESG) factors. Water ETFs mostly invest in utilities and industrials in the U.S., the UK, and Switzerland.
Four out of five funds on the list are global, and one, the Invesco Water Resources ETF (PHO), only invests in U.S. companies. Because water is a global resource and water scarcity is a global issue, we suggest picking a global fund instead of a U.S.-only fund. We would also be careful with overexposing yourself to one country, even the U.S., due to having to keep track of water regulations.
💰 Our Pick
We like the Ecofin Global Water ESG Fund (EBLU). Despite its small size, EBLU is the cheapest fund on the list, and it also has high ESG scores from most data providers.
You can view our analysis of the top five water ETFs below.
|Fund||Ticker||Expense Ratio||Assets ($m)||Inception Date||Fossil Free Funds Rating||MSCI Rating||Sustainalytics Rating|
|Invesco Water Resources ETF||PHO||0.60%||1650||2005||A||AA||3 / 5|
|First Trust Water ETF||FIW||0.54%||1000||2007||C||AA||3 / 5|
|Invesco S&P Global Water Index ETF||CGW||0.57%||956||2007||D||AA||3 / 5|
|Invesco Global Water ETF||PIO||0.75%||281||2007||C||AA||3 / 5|
|Ecofin Global Water ESG Fund||EBLU||0.40%||43||2017||B||AA||4 / 5|
Invesco Water Resources ETF (PHO)
- Assets under management: $1.65 billion
- Expense ratio: 0.60%
- Dividend yield: 0.82%
Launched in 2005, Invesco Water Resources ETF (PHO) is the largest water ETF. PHO tracks the Nasdaq US Water Index and invests in U.S. companies that create products designed to conserve and purify water for homes, businesses, and industries. It has $1.65 billion under management, and its trading cost is relatively low.
PHO has 36 holdings, largely in machinery and water utilities; the top three are Xylem Inc (XYL), Roper Technologies (ROP), and American Water Works (AWK). Xylem and Roper Technologies create water technologies like water meters and pumps. American Water Works is a water utility operating across the U.S.
In 2020, PHO returned over 20%, and year-to-date it’s up another 14%.
PHO is a good fund, but it only invests in U.S. companies. There aren’t many large publicly traded water companies to invest in in the U.S. As a result, the fund is very concentrated: its top ten holdings are almost two-thirds of the fund’s assets. We also think that water scarcity is a global issue, and it makes more sense to invest in global water utilities and technology.
First Trust Water ETF (FIW)
- Assets under management: $1 billion
- Expense ratio: 0.54%
- Dividend yield: 0.99%
Established in 2007, the First Water Trust ETF tracks an index of the thirty-six largest water companies listed in the U.S. The fund currently trades on the New York Stock Exchange (NYSE) under the ticker symbol FIW.
Despite only investing in 36 stocks, FIW is less concentrated than other water funds (top ten stocks are around 40% of the fund). Its holdings are also different. The top three holdings are Pentair PLC (PNR), Xylem Inc (XYL), and Roper Technologies (ROP). The thirty-six stocks are weighted equally and separated into five tiers to boost the weighting of small and microcap companies.
FIW returned over 20% in 2020 and 17% in 2021 year-to-date.
Invesco S&P Global Water Index ETF (CGW)
- Assets under management: $956 million
- Expense ratio: 0.57%
- Dividend yield: 1.68%
The Invesco S&P Global Water Index ETF is the first fund on this list that tracks a global index of water utilities, equipment, and materials. The index is weighted by market cap. The fund currently trades on the New York Stock Exchange under the ticker symbol CGW.
Launched in 2007, CGW is a large and liquid for a water ETF, with close to $1 billion under management. Like other water ETFs, CGW has relatively few holdings (around 50). Nearly 50% of assets are in U.S. companies; 15% are in the UK, and around 10% in France. Its top three holdings are American Water Works (AWK), Xylem Inc (XYL), and Veolia Environmental SA (VIE:EPA).
The fund was up 15% in 2020 and 16.6% year-to-date in 2021.
What we don’t like is a D rating from Fossil Free Funds. CGW is meant to be a sustainable fund, and if you are a sustainable investor, you may want to avoid fossil fuel stocks. According to Fossil Free Funds, fossil fuel stocks are over 6% of the fund.
Invesco Global Water ETF (PIO)
- Assets under management: $281 million
- Expense ratio: 0.75%
- Dividend yield: 1.48%
Not to be confused with the Invesco S&P Global Water Fund (PHO), the Invesco Global Water ETF tracks an index of global water conservation and purification companies. In contrast, PHO tracks U.S. companies only.
The fund is listed on NASDAQ and trades under the ticker symbol PIO.
PIO has around 40 holdings, mostly industrials and utilities. The top three are Geberit AG (GEBN), Roper Technologies (ROP), and Danaher Corporation (DHR). The top ten holdings are over 50% of the fund’s assets. PIO invests globally, but it’s concentrated in the U.S. (47% of assets), the UK (18%), and Switzerland (8%).
The fund was up 14% in 2020 and another 13% year-to-date in 2021. However, PIO is the most expensive fund on the list at 0.75% ($75 annually for a $10,000 investment.)
Ecofin Global Water ESG Fund (EBLU)
- Assets under management: $43 million
- Expense ratio: 0.40%
- Dividend Yield: 1.72%
Established in 2017, the Ecofin Global Water ESG Fund can be found on the New York Stock Exchange under the ticker symbol EBLU. The ETF is extensively invested in companies that provide water infrastructure and equipment.
EBLU’s 44 holdings include some names that should already be familiar to you. Geberit AG (GEBN), American Water Works (AWK), and Xylem Inc (XYL) are the top three. EBLU is a global fund, but it’s concentrated in the U.S. (over 50% of assets), the U.K. (16%), and Switzerland (10%).
EBLU returned nearly 16% in 2020 and 15% year-to-date in 2021. It is the cheapest fund on our list with a 0.40% expense ratio.
Water scarcity presents an opportunity for investors. Water companies should benefit as governments around the world move to address water shortfalls. By investing in water funds you are also supporting businesses that are helping solve the emerging water crisis.