Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect demand for water and water-related services to grow as our global population grows and economies develop, the PowerShares Water Resources ETF (NYSE: PHO ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The water ETF's expense ratio -- its annual fee -- is a reasonable 0.60%. That's a bit higher than many ETFs, but still far lower than most stock mutual funds.
This ETF actually doesn't have the most impressive record so far, but it's been around for only a few years, and the future matters more than the past. It outperformed the S&P 500 (INDEX: ^GSPC) from 2006 to 2008 and has lagged it since. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 13%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Deemed by some to be one of the best-run conglomerates, Danaher (NYSE: DHR ) is up about 5% and has been growing its earnings at double-digit rates over the past few quarters.
Other companies didn't add as much to the ETF's returns last year but could have an effect in the years to come. Veolia Environnement (NYSE: VE ) , for example, is the world's largest publicly traded water company, deriving most of its revenue from wastewater treatment and environmental cleaning. It dropped some 46% over the past year, as municipalities struggling in this environment pulled back on spending. But that's likely to recover, and the company is expanding internationally, too.
Mueller Water (NYSE: MWA ) lost about 10%, also largely because of struggling municipalities. It may take a while, but deteriorating infrastructures will eventually need to be updated. That will also benefit Itron (Nasdaq: ITRI ) , down 48%, which makes smart water meters.
The big picture
Demand for clean water isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
Learn about the best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these 10 Stocks for Your Retirement Portfolio.
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