Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the water industry to thrive as demand grows for the limited resource for consumption, industry, agriculture, and sanitation, the PowerShares Global Water ETF (NYSE: PIO) 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 several dozen 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 not-astronomical 0.75%, although it's fairly high for an ETF.
This ETF doesn't have the most impressive track record, but it's also very young, with just three full years on the books. It underperformed the S&P 500 in 2008 and 2010, but beat it substantially in 2009. 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 27%, 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. Aqua America (NYSE: WTR), up roughly 10% over the past year, and American Water Works (NYSE: AWK), up 32%, have been buying and selling properties, and via a recent asset-swap deal with each other, are strengthening their core competencies.
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 (NYSE: VE), a $10 billion global water treatment giant, lost about 20% over the past year, but stands to benefit as more U.S. cities and towns look to the private sector to treat their water. Itron (Nasdaq: ITRI) lost 30% this past year, but demand for its smart utility meters seems assured, given the growing importance of energy efficiency and eventual infrastructure updates. Some find its fall overdone.
The big picture
Interest in water companies has been growing, given that only 2.5% of the world's water supply is fresh water, and less than 1% of that is available for human use. A well-chosen ETF can grant you instant diversification across the industry -- and make investing in and profiting from the sector that much easier.
