Trend: China and India face water problems, which should benefit companies that provide pertinent products and services.
Investor's Business Daily provides some insight into water ETF (PHO).
Link: Investor's Business Daily: Liquid Profits Flowing From Water-Based ETF
Emerging markets aren't just clamoring for raw materials. They also need more water. And in the U.S., pipelines are aging and treatment facilities need repair.
"As supply lines become more strained, utilities around the world are going to be forced to raise rates and buy more equipment," said Jack Payne, chief investment officer at Michael Joyce & Associates.
Recently, his Richmond, Va., company started moving clients into PowerShares Water Resources. (PHO) "It's the only real way to get direct exposure to companies benefiting from supplying and producing fresh water around the world," said Payne. "It's an active, long-term bet on a sector that's just starting to become more in focus with investment managers."
Outperforms S&P 500
The ETF opened in December. It's up 19.5% vs. the S&P 500's 4.8% this year, through Tuesday.
"The early returns are nice, but there are some compelling fundamental reasons to be in this fund now," said Anthony Welch, a money manager at Sarasota Capital Management.
Parts of China and India face huge delivery and supply problems, he says. "Only 11% of India's households have access to piped water," said Welch. "By 2025, that number will more than quadruple."
As a result, India's water use should more than double. "Even in the U.S., which has nearly 100% access to clean water, a lot of the pipes in use are over 100 years old," said Welch, whose firm also invests in the ETF. "That's not too surprising considering this country is over 200 years old and about 700,000 water pipes run throughout the U.S. A lot of those are going to need replacing in coming years."
Based On Index
The fund is based on the 37-stock Palisades Water Index. Sectors are weighted according to long-term industry fundamentals by analysts at Dallas-based Water Tech Capital, the index's creator.
As of April 1, sector weightings were: utilities, 26.5%; treatment, 23%; infrastructure, 16.5%; analytical, 6%; resource management, 17%; and conglomerates, 11%.
Disclosure: I own shares of PHO.
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