Posted by: Aaron Pressman on May 18, 2007
Investing in companies in the water business has worked out pretty well for the past few years. Water is a limited resource in many parts of the world and business is booming for companies that supply water infrastructure, run water utilities and help control or remove pollutants to make more clean water. I first wrote about it two years ago and noted the existence of an exchange-traded fund, the PowerShares Water Resources Portfolio (Symbol: PHO) that gave investors an easy way to play the trend in an ETF story back in March, 2006. It’s worked pretty well. The now $1.6 billion fund gained 22% last year and is up 6% year to date. In ETF land success invariably breeds imitation and so the solid performance of the Powershares water fund has now spawned two competing offerings worth a look.
The First Trust ISE Water Index Fund (FIW) is pretty similar to the Powershares fund. In fact, 80% of the companies in the new fund were already included in the Powershares fund. The real difference is that the new First Trust fund uses a traditional index weighting based on the market capitalization of each stock while the older Powershares fund is basically equal-weighted. That means the original is giving a greater weight to small cap issues and the new fund is tilting towards large caps. According to ETFConnect, the First Trust fund has an expense ratio of 0.60% versus 0.66% for Powershares — not much of a difference.
The new Claymore S&P Global Water Index ETF (CGW) has an obvious difference from both of its competitors and one that many investors will probably like as well. It’s investing in companies all over the world as opposed to just in the United States. Heavy weightings beyond the U.S. include France, Japan and the United Kingdom. The expense ratio is 0.65%. The underlying S&P index also has the best five-year performance, gaining an average of 22% a year versus 18% for First Trust’s cap-weighted index and 16% for Powershares equal-weighting. There’s a great article over at IndexUniverse discussing and comparing all three water ETFs in even more detail.
As an interesting aside, the seven stocks we included in a chart with my April, 2005 BW story have gained an average of 21% since then, led by Tetra Tech’s (TTEK) 65% leap. Only two stocks are down, Aqua American (WTR) and Pentair (PNR), both by 10%. Insituform (INSU) gained 32%, Nalco (NLC) rose 33% while Calgon Carbon (CCC) was up just 1%. CUNO (CUNO) was taken over at fat 41% premium to the price in my story by 3M.