Climate Challenge Brought Into Focus With These 2 Water ETFs

Water is essential to all life. The humanitarian or environmental aspects surrounding water scarcity as well as flooding make news headlines regularly and on Mar. 22 we celebrated World Water Day. According to National Geographic:

"Humanity is facing a growing challenge of too much water in some places and not enough water in others."

Recent research led by Rajibur Reza of the Griffith Business School, Nathan, Australia highlights:

"Currently, 20% of the world’s population ... do not have reliable access to an improved supply of drinking water and some 2.6 billion do not have access to basic sanitation... By 2050, more than 4 billion people, nearly half the world’s population, are expected to live in countries that are chronically short of water."

Put another way, the uneven distribution of water globally has made clean drinking water a precious commodity in some parts of the world. As a result, recent years have seen the economic and business side of the water issue gain importance, too.

For instance, Wall Street has been developing water-focused exchange-traded funds (ETFs). We recently covered the Invesco Water Resources ETF (NASDAQ:PHO). Today, we introduce two more funds that might be of interest to many readers.

1. First Trust Water ETF

Current Price: $78.93
52-Week Range: $44.00 - $78.99
Dividend Yield: 0.50%
Expense Ratio: 0.54%

The First Trust Water ETF (NYSE:FIW) provides exposure to businesses that generate a substantial part of their revenues from the potable and wastewater industry. Since its inception in May 20, net assets have grown to $821 million.

FIW Weekly

FIW, which has 36 stocks, tracks the returns of the ISE Clean Edge Water Index. Close to 40% of the fund is held in the top 10 names. In terms of sectors, industrials lead with 56.82%. Next are utilities (21.58%) and health care (11.56%).

Pentair (NYSE:PNR), which concentrates on water quality systems and filtration solutions; IDEXX Laboratories (NASDAQ:IDXX), which among other markets manufactures products and provides services for water testing; and Roper Technologies (NYSE:ROP), which provides measurement and analytical solutions; are among the leading names in the ETF.

So far in 2021, the fund has returned more than 8% and hit a record high on Apr. 1. It’s trailing P/E and P/B ratios of 35.52 and 3.92, respectively, point to an overstretched valuation level.

Many of the names in FIW are expected to report in the coming weeks. Therefore, volatility and profit-taking are likely. A potential decline toward the $75 level or below would offer a better margin of safety.

2. Invesco S&P Global Water Index ETF

Current Price: $49.72
52-Week Range: $30.98 - $49.67
Dividend Yield: 1.33%
Expense Ratio: 0.57%

The Invesco S&P Global Water Index ETF (NYSE:CGW) invests in a range of global businesses in different industries, including water utilities, infrastructure, equipment, instruments and materials. The fund started trading in May 2007, and has $49 million net assets.

CGW Weekly

CGW, which tracks the S&P Global Water Index, has 50 holdings. In terms of sector allocation, industrials get the highest share with 47.86%, followed by utilities (41.28%) and information technology (6.03%).

The top 10 holdings comprise about 38% of the assets. More than 51% of the businesses come from the US. Next in line are the UK, France, Switzerland, and Canada. Xylem (NYSE:XYL), which manufactures pumping equipment; Pentair (NYSE:PNR); and Swiss plumbing supplies maker Geberit (OTC:GBERY) lead the names in the roster.

Year-to-date, the ETF has returned almost 6%, and also hit an all-time on April 1. Trailing P/E and P/B ratios are 30.37 and 2.90, respectively. Potential buy-and-hold investors would find better value around $45.