Have you “Watered” your Investment Portfolio?

Nothing grows without water. That’s true for humans, animals, plant-life, and possibly your investment portfolio in 2021. “Watering” might be the catalyst to secure double-digit returns this year. Have you looked at the numbers for water stocks recently?

Of course, investing in water goes beyond simple dollars and cents. As temperatures warm and precipitation totals decline, there’s a humanitarian crisis brewing around the availability of clean drinking water. We’re not just talking third world countries. The crisis is global.

Meanwhile, an aging water infrastructure is hindering the purification and mass distribution of potable water. That issue needs to be addressed. Repairing railroads, highways, and bridges is important, but there needs to be more focus on water processing plants and pipelines.

Five Water ETFs You Should Add to Your Portfolio

One of the best ways to increase exposure to a sector or industry is by investing in exchange traded funds (ETFs). Mutual funds are okay too, but they’re harder to get into and even more difficult to get out of. ETFs can be bought and sold like equities.

For the socially conscious investor, the ETFs that I’ve listed here all have AA ratings with MSCI and high ESG scores. The companies they invest in are dedicated to the preservation, purification, and distribution of clean drinking water. Here’s the list:

  • Invesco Water Resources ETF (PHO): With a market cap of $1.66 billion, PHO is the largest water ETF on this list. Since their inception in 2005, the fund has a total return of 242.64%. In 2021, its up 15.71% YTD, beating the S&P by more than 4%.
  • First Trust Water ETF (FIW): This is a good choice for microcap investors. FIW tracks thirty-six companies in the water space and weights them in five tiers based on market cap. Total return is 310.19% since 2007. YTD return for 2021 is a whopping 17.41%.
  • Invesco S&P Global Water Index ETF (CGW): The total return for this fund since inception in 2007 is 117.12%. In 2021, it’s up 16.58% YTD in a global economy that is still mired in economic recovery efforts. That’s well done by the fund managers.
  • Invesco Global Water ETF (PIO): With a lower concentration on US companies and more exposure in Europe and Asia, PIO is a good fund for global diversification, but the numbers are low. Total return is just 55.11% since 2007. YTD this year is 13.54%.
  • Ecofin Global Water ESG Fund (EBLU): This is my personal favorite. Established in 2017, it’s already produced an 81.18% total return and a YTD return of 14.96% in 2021. This fund focuses on companies that provide water infrastructure.

Individual Companies to Watch in the Water Space

I spent some time on ETF.com to evaluate the water ETFs above and I found some common denominators amongst the funds. The following three companies show up repeatedly, so I decided to do some individual research on them. Here’s what I found:

  • American Water Works (AWK): Founded in 1886, American Water Works is a public utility company that operates in the US and Canada. The company has subsidiaries that manage water infrastructure and wastewater treatment. The average annual return for the past five years has been just north of 20%.
  • Xylem Inc (XYL): With operations in 150 countries and revenue over $5 billion a year, this company is the pick of the list. Their stock is already up 18.84% this year and they service residential, commercial, and agricultural sectors. Like AWK, Xylem Inc is a public utility with water infrastructure and wastewater treatment plants.
  • Roper Technologies (ROP): This company is a different animal. They have four divisions, including one for energy systems and controls, which is why they’re in the water stock category. They do business in over 100 countries and are listed on the Russell 1000 index. Their YTD return is just 7.96%, but I like them to break out in Q3.

Investing in water is a gift to the generations to come. I have nine grandchildren, ranging in age from two months to seventeen years. They’ll inherit a few dollars when I’m gone and should be able to all go to college, but that means nothing if they don’t have clean drinking water.

From a business perspective, water is a solid investment. I like the return numbers I’ve seen and have invested accordingly in all five of these ETFs and the three companies I profiled. Are you willing to do the same? Your children will thank you for it.

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About the Author

Have you “Watered” your Investment Portfolio?

Kevin Flynn

A former financial professional and founder of AdvisorScale Financial Writing, Kevin lives in Leominster, Massachusetts with his wife Evelyn, two cats, and nine wonderful grandchildren.