Growing world populations and improving economies have prompted greater demand for water. Corporations are developing infrastructure and developing systems to maintain and to re-use quality fresh water resources. The water sector finally has become recognized as an industry with significant growth potential throughout the next decade.
Four exchange traded funds currently trade in U.S. equity markets and one ETF trades on the Toronto market. They own baskets of equities in companies that develop water resources, provide water treatment services and offer technologies and services related to water consumption. Each ETF has unique investment characteristics.
The most actively traded ETF in the sector is PowerShares Water Resource Portfolio . The ETF tracks the Palisades Water Index consisting of a diversified portfolio of 32 equity securities. Approximately 75 per cent of the portfolio is invested in the industrial sector. Largest holdings are AECOM Technology, URS Corp. Valmont Industries, Veolia Environment and Danaher Corp. Management expense ratio is 0.64 per cent.
PowerShares also sponsors the PowerShares Global Water Portfolio ETF . The ETF tracks the Palisades Global Water Index consisting of a diversified portfolio of 29 equity securities. The main difference between the two funds is a focus by the global water portfolio index on water utilities that represent a 31 per cent weight in the portfolio. The industrial sector has a 53 per cent weight. Largest holdings are Valmont Industries, Organa, Stantec, Tetra Technologies and Kurita Water Industries. Management expense ratio is 0.75 per cent.
Guggenheim sponsors the Guggenheim S&P Global Water Index ETF . The ETF tracks the S&P Global Water Index consisting of a diversified portfolio of 49 equity securities. The fund has a concentrated position in three Chinese equities: Guangdong Investment, China Water Affairs Group and China Everbright International. Other large weights are held in United Utilities, Sound Global and Hyflux. Utilities represent 43 per cent of the portfolio's value and industrials represent 46 per cent. Management expense ratio is 0.65 per cent.
Claymore sponsors the Claymore S&P Global Water ETF . The ETF tracks the S&P Global Water Index consisting of a diversified portfolio of 50 equity positions. The Claymore fund has similar content to the Guggenheim fund but does not include the three Chinese equities. Weight in the Industrial sector is 50 per cent and weight in the utilities sector is 40 per cent. Management expense ratio is 0.66 per cent.
First Trust sponsors the First Trust ISE Water Index Fund . The ETF tracks the ISE Water Index consisting of a diversified portfolio of 36 equity securities. Industrials represent 58 per cent of the portfolio, utilities represent 23 per cent and Materials represent 14 per cent. Largest holdings are American Water Works, Companhiade Saneamento, SABESP, Pentair and Ashland. Management expense ratio is 0.69 per cent.
On the charts, the sector currently has a neutral technical profile. Intermediate trend is neutral. Most ETFs in the sector have remained in a trading range since the beginning of the year. Strength relative to the S&P 500 Index remains neutral. ETFs with the highest weight in the utility sector have been the best performers. Short-term momentum indicators for all the ETFs currently are oversold, but have yet to show signs of bottoming.
Seasonality studies on the sector are unavailable. Water indices and related ETFs do not have sufficient history to complete an analysis.
Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. He is also a research analyst for JovInvestment Inc. Reports are available at www.timingthemarket.ca and www.equityclock.com. Follow him on Twitter @EquityClock.