Trend: Well-targeted Exchange Traded Funds, such as PHO, can provide great investment vehicles for astute investors.
Russell Bailyn's Financial Planning Blog provides some insight into the water ETF PHO. He recommends investing in PHO, based on a long term, big pricture view. Excerpts below.
Link: Investing in Water? A Deeper Look into PHO.
The PowerShares Water Resources Portfolio (PHO) is up 17% so far in 2006, blasting past both broader market indexes and related sector indexes such as utilities, natural resources, and clean energy. In fact, the S&P 1500 Water Utilities Index rose 46% in 2005. Why the sudden interest in water? Let us explore news and statistics on the sector first and then discuss why PHO is the best way to play it.
PHO invests in environment-friendly companies such as the California Water Service Group (CWT) that both purify water and provide facilities and technology for water testing and inspection. They also look for companies that treat water for use in industrial processes. These companies do not operate exclusively in the West. China and the Middle East have a huge demand for pure water, both for industrial purposes and basic consumption. The ability to transport water greatly affects countries such as Israel, Jordan, and Lebanon where arid conditions make agriculture quite difficult. Finally, PHO recognizes the growing bottled water industry.
The PowerShares Portfolio is based on the Palisades Water Index, a quarterly rebalanced portfolio of 25 stocks created in 2003 by Elias Azrak of Hydrogen Ventures, LLC. The PowerShares Portfolio may vary it’s weighting on different stocks in the sector and maintains a 20% flexibility in straying from the sector when appropriate. Please note that while PHO is passive as compared to a mutual fund, the ETF tends to re-weight and switch holdings regularly with its rigorous rebalancing schedule. The intellidex system used by PowerShares tends to favor smaller capitalized stocks with aggressive growth rates rather than large-cap stocks.
Economists estimate $500 billion being spent in the next 25 years on research and infrastructure related to clean water initiatives. Another $100 billion is estimated for researching health concerns regarding pollutants which affect water and other natural resources.
via Seeking Alpha
Disclosure: I own shares in PHO.
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