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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some water-related companies to your portfolio, the PowerShares Water Resources ETF (NYSEMKT: PHO ) , with a ticker symbol that's a delicious Vietnamese soup, 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. The PowerShares ETF's expense ratio -- its annual fee -- is 0.62%.
This ETF has performed reasonably well, beating 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 water companies?
Our planet's growing population is always going to need clean water and, even in developed countries, many water systems have aging infrastructure that needs updating.
More than a handful of water-related companies had strong performances over the past year. Mueller Water (NYSE: MWA ) , for example, soared 149%. It had been challenged in recent years by struggling municipalities, but a housing turnaround and increased construction work bodes well for the maker of valves and other items. Municipalities are not a lost cause, either, as deteriorating infrastructures will eventually need to be updated. There are still some concerns about the stock, though, such as debt.
Based in Omaha and selling metal products, poles, towers, and irrigation systems, Valmont Industries (NYSE: VMI ) surged 63%. In its last quarter, it reported revenue and earnings up 9% and 35%, respectively, over year-ago levels. Management expects recent drought conditions, along with high farm income, to boost its irrigation business.
Aqua America (NYSE: WTR ) gained 17%. Among other activities, it's involved, via a joint venture, in supplying water to controversial natural-gas fracking operations. It sports higher profit margins and more consistent earnings than many of its peers, pays a dividend yield of about 2.8%, and has been upping its dividend for 20 years in a row. Its last quarter featured earnings per share up 20%, and revenue up 12%.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Veolia Environnement (NASDAQOTH: VEOEY ) , for example, shed 6%, rebounding some after being whacked largely by slowdowns in Europe, where it's based. It offers an appealing dividend yield near 7%, but some wonder whether that's in danger, given the company's debt load. Veolia has been cutting costs and selling some assets to address that. It has also been shifting its focus from waste to water, and is a major player in the water world.
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.
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