Water is the most important commodity that we largely take for granted.
Water is essential not only for life but for a range of industries and almost all economic activities. From agriculture to beverages to industrial applications to consumer staples, there is a clear and growing demand for fresh, clean water, and there's only a limited supply. Add in the impact of climate change, which is shifting water flows and leading to potential water shortages all over the globe, and there is a pressing need for governments and the private sector to invest in water infrastructure.
A market with nearly unlimited demand and only limited supplies can make for an intriguing investment. There are a large number of water stocks to pick from, including utilities, filtration companies, and the makers of pumps and pipes needed to transport water.
But utilities tend to be limited in their geographic reach, and water tech and equipment companies are often specialists. You'd have to buy a lot of stocks to get exposure to the entire sector. With that in mind, it might make more sense to invest in water through an exchange-traded fund (ETF) that gives you a small interest in a large number of companies focused on making sure clean water gets to where it is needed.
Top water ETFs in 2024
| Company | Total Assets | Description |
|---|---|---|
| Invesco Water Resources ETF (NASDAQ:PHO) | $1.67 billion | A top-heavy collection of water stocks ranging from filtration tech makers to utilities to pumping equipment makers. |
| First Trust Water ETF (NYSEMKT:FIW) | $1.26 billion | A less concentrated portfolio heavy on water tech stocks but including companies working in many different parts of the water chain. |
| Invesco S&P Global Water Index ETF (NYSEMKT:CGW) | $840.08 million | An index-based ETF that tries to provide broad global water exposure via the S&P Index that tracks the 50 largest water-related companies in the world. |
| Invesco Global Water ETF (NASDAQ:PIO) | $234.6 million | A more concentrated global portfolio with some exposure to emerging markets and a higher expense ratio. |
| Ecofin Global Water ETF (NYSEMKT:EBLU) | $42.49 million | A relatively small entry with a focus on sustainability and ESG and low expenses. |
1. Invesco Water Resources
Investment management company Invesco (IVZ 0.2%) dominates the water ETF market, and the Water Resources fund is its largest offering. Based on the NASDAQ U.S. Water Index, the fund seeks to track the performance of companies in the business of purifying, delivering, and conserving water for homes, businesses, and industries. It is not limited to companies that are doing business in the U.S., but it is heavily focused on stocks that trade on U.S. markets.
As of early March 2022, the top five holdings in the Invesco Water Resources ETF were:
- Danaher (DHR -1.27%)
- American Water Works (AWK 1.69%)
- Roper Technologies (NYSE:ROP)
- Xylem (XYL 0.74%)
- Ecolab (ECL -0.02%)
The five stocks represent about 39% of total assets. Invesco Water Resources has a 0.60% expense ratio.
2. First Trust Water
The water ETF sponsored by First Trust Advisors is based on the ISE Clean Edge Water Index, which is composed of companies that derive a substantial portion of their revenues from the potable and wastewater industry. That can include utilities and other companies, but the index is weighed toward the companies that make the tech that helps to make water safe to drink.
As of early March 2022, the top five holdings in the First Trust Water ETF were:
- AECOM (ACM 0.77%)
- Agilent Technologies (A -1.57%)
- Danaher
- American Water Works
- Essential Utilities (WTRG 1.88%)
The five stocks represent about 20% of total assets. The ETF has a 0.54% expense ratio.
3. Invesco S&P Global Water Index
As the name implies, the Invesco S&P Global Water Index gives you more international exposure and is based on the S&P Global (SPGI 0.31%) Water Index. The fund aims to invest at least 90% of its total assets in securities tracking that index. The S&P Dow Jones Indices index the fund is based on is designed to measure the performance of the 50 largest global companies in water-related businesses.
As of early March 2022, the top five holdings in this fund had an international flair. They were:
- American Water Works
- Xylem
- Veolia Environnement (VEOEY 1.81%)
- Essential Utilities
- Severn Trent (SVT 2.15%)
The five stocks represent about 32.7% of total assets. The ETF has an expense ratio of 0.57%.
4. Invesco Global Water
This, too, is an index fund, tracking the Nasdaq OMX Global Water Index. About 55% of fund assets are based in the U.S., followed by the U.K., Switzerland, and Japan. The fund also has exposure to emerging markets, including China and Brazil.
As of early March 2022, the top five holdings in the Invesco Global Water fund were:
The five stocks represent about 37% of total assets. The ETF has an expense ratio of 0.75%.
5. Ecofin Global Water
Ecofin is a relatively new entry in the water ETFs and has a focus on sustainability. The fund will only invest in companies that derive at least 50% of revenue from the water industry or are ranked as a top company in a water category. Companies must also rank high on an ESG screen.
As of early March 2022, the fund had 42 total holdings. The top five were:
- American Water Works
- Ferguson
- Ecolab
- Geberit
- Veolia Environnement
Combined, the five stocks represent about 36% of the portfolio. The ETF has a 0.40% expense ratio.
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Are water ETFs right for you?
Water isn't the most glamorous investment, but it is hard to think of a commodity more critical to society. Nations have gone to war over access to water. Those days are hopefully behind us, but given how widely water is used and the limited amounts of it available in many parts of the world, water should be an area of significant investment and growth in the years to come.
Buying into the water industry can provide a nice counterweight to more speculative tech investments or boom-and-bust cyclical companies. Buying ETFs instead of individual companies provides an easy way to gain geographic and subsector diversification without having to devote too much of your portfolio to the industry.
