Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some global water stocks to your portfolio but don't have the time or expertise to hand-pick a few, the Guggenheim S&P Global Water Index ETF (NYSEMKT: CGW ) 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.
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on global water stocks, sports an expense ratio -- an annual fee -- of 0.7%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has outperformed the world market over the past three and five years. 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.
Why global water stocks?
There are few natural resources more critical to human survival than water, and it's not becoming much cleaner or more plentiful over time. The future looks bright for winning global water stocks, as they serve a growing world population.
More than a handful of global water stocks had strong performances over the past year. Veolia Environnement (NASDAQOTH: VEOEY ) gushed 85% and recently yielded an appealing 4.2%. It carries a lot of "crushing" debt, but it has been effectively lowering that, in part by cost-cutting. It has been shifting its focus, shedding waste operations and boosting its water management work. Wall Street analysts have liked its restructuring but had hoped for heftier recent earnings and are wary of its current valuation.
Aqua America (NYSE: WTR ) surged 28%, and with its dividend yield of 2.5% it compares favorably with many peers. The company is engaged in fracking, as well as more traditional water operations, and it has steadily been making acquisitions. Some may have worried when the company's CEO sold 99,176 shares, but insider sales are not necessarily bad (an executive could just be generating cash for personal needs, such as a home purchase), and he still owns more than 780,000 shares. Its recent stock split was also mostly a nonevent, though a 9% dividend increase is welcome news for shareholders. Bulls like its efficiency and growth rate.
Xylem (NYSE: XYL ) gained 16% and yields 1.7%. The water treatment technology company and former ITT subsidiary saw its shares drop in July after it posted disappointing quarterly earnings and management lowered expectations. Its gross margin has generally grown in the past few years, but net margins have shrunk cut costs, but he may not stick around long. Like others in the industry, it has been making plenty of acquisitions. Analysts at Zacks rate the stock to Underperform, in part due to weakness in Europe and tough competition.
Other companies didn't do quite as well over the last year but could see their fortunes change in years to come. Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE: SBS ) , or SABESP, shed 28%, in part due to concerns about its debt and weakness in Brazil. Some see its drop as a buying opportunity, though. (Its forward P/E is below five.) Analysts at Zacks are impressed, too, upping their rating to "neutral" and liking its second quarter's 13% revenue growth and 18% earnings growth.