The Complete Guide to Water Stocks and ETFs

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Aja McClanahan is a personal finance writer who has a story of getting out of over $120,000 in debt. She's been featured in Yahoo! Finance, MarketWatch, U.S. News and World Report, Kiplinger and has written for publications like Business Insider, Credit Karma, Inc., and many others. Aja writes about investing and personal finance for Wealthsimple. In her spare time, she manages her own investment portfolios for herself, husband, and two kids. Aja double majored in Spanish and Economics and holds a Bachelor of Arts degree from University of Illinois at Urbana-Champaign.

Investors search for trends, growing industries, and general growth sectors with outlooks for sustained growth. One such sector that could experience rapid growth is the “water” industry. As the world’s population increases, more innovation is required to find, clean, treat, and use water for many different reasons.

If you’re interested in water stocks and ETFs, this guide can give you some ideas. As always, make sure you do your research, understand and vet your investments based on your personal financial goals.

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What does it mean to invest in water?

Investing in water means investing in companies that provide products and services related to the worldwide water supply. As you can imagine, there are dozens of products and services that can help businesses and individuals have access to the water they need for various purposes.

Of special concern is finding and conserving enough drinking water for humans, animals, and vegetation. Investing in water can mean having an ownership stake in the form of stocks, ETFs, or bonds in companies whose business models revolve around improving access to water in some way. In some cases, you may consider having an ownership stake directly in a business related to water, but if you don’t have the funds to participate as a direct owner in this capital-intensive industry, investing in water-related securities is the next best thing.

Here are a few examples of water-related sectors, products, and services you might invest in:

  • Infrastructure and distribution: Wells, fountains, irrigation systems, transportation, pumps, pipe, valves

  • Purification and filtration: Cleaning, additives, treatment, other enhancements

  • Manufacturing: equipment, vehicles, widgets and mechanical devices

  • Services: Construction, consulting, metering, water management, software, water rights

Why invest in water?

You’d invest in water for the same reason that you’d invest in other commodities such as oil, soybeans, natural gas, and pork bellies. If you believe in a future where increased demand for a clean, environmentally-friendly water supply will put upward pressure on related products and services, then you’d invest in water stocks.

Growth catalysts for water stocks

You might be thinking, “Isn’t the earth’s surface over 70% water?” Therefore, investing in what seems to be a plentiful, renewable resource wouldn’t make much sense. While that is true, it still takes time, energy, capital, and other resources to access usable water needed for industrial, agricultural, and other applications. It takes enormous amounts of water to process food and other manufactured products, and there’s still more needed for humans, animals, and vegetation.

According to a report by the Organisation for Economic Co-operation and Development (OECD), several regions in the BRIC emerging markets (Brazil, Russia, India and China) will experience heightened demand for water by 2030. Also, with more governments and corporations committing to stricter environmental, social, and governance (ESG) standards, many investors predict that compliance will require more investment in infrastructure that supports these efforts.

How do I pick water stocks and ETFs?

Understand the financials

As mentioned, you should thoroughly research any investment you plan to make. Like you would with any stock or ETF, make sure that the stock is positioned to increase on a long-term, sustained basis—to the best of your ability.

One way to do this is to check the historical performance of the stock or ETF you are investing in. Although all publicly traded companies disclose that historical performance doesn’t predict future performance, most stock analysts agree that historical performance is still a helpful reference for analysis. If you are investing in corporate bonds, check the company’s credit rating along with the bond’s market value, maturity, interest rate, and yield.

As you conduct research, you should examine documents that help you understand more about your potential investment in the water industry. If you will invest in a publicly traded company, you can usually find prospectuses, 10-K filings (annual reports), and other key figures like the P/E ratio, market cap, and dividend yield figures. You can then compare the performance of these securities against popular market indexes like the S&P 500 or the total Stock Market index.

Know the industry risks and opportunities

Within this information, you should see explanations, in plain language, of the growth opportunities along with risks faced by the company and industry as a whole.

In the case of water stocks, opportunities may be in the form of increased worldwide demand in the near and long term. Risks might be in the form of inexpensive inventions and technology that could bring extreme abundance to the water supply rather than shortages.

Be comfortable with corporate governance standards

You are likely investing in water stocks not only because of the promising growth forecasts but also because socially responsible investing is important to you. With this in mind, investing in water stocks can present ethical concerns for investors with certain personal convictions.

For instance, you may find a water ETF you like, only to find it also invests in other industries you prefer to avoid. ETFs can invest in many companies, regions, and sectors, which increases the risk of running into ethical concerns for some investors.

Another example is if an ETF could own a biotech company whose core competency is in pharmaceuticals but has some light dealings in water. In this case, you might not think the stock is “water-focused” enough for your liking.

In either case, make sure your ETF holdings and individual stocks withstand the scrutiny of your ethical convictions and financial objectives

Water stocks and ETFs to consider in 2021

Here’s a list of stocks and ETFs to explore if you’d like to invest in water.

American States Water Company (NYSE: AWR)

American States Water Company provides operations, maintenance, and construction management services for water distribution and wastewater collection and treatment facilities. The company also holds both water and electric utility subsidiaries, as well.

American Water Works Company Inc (NYSE: AWK)

American Water is an American public utility company that operates in the United States and Canada. American Water also owns subsidiaries that manage municipal drinking water and wastewater systems.

First Trust Water ETF (NYSE:FIW)

This ETF fund invests in companies that focus on areas of potable and wastewater management. The Index selects the top 36 stocks in the industry by market capitalization and is rebalanced semi-annually.

Essential Utilities Inc (NYSE: WTRG)

Essential Utilities is a utility company with stakes in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana, and Virginia. The company provides drinking water and wastewater treatment infrastructure and services.

California Water Service Group (NYSE: CWT)

California Water Service Group is a utility company that provides drinking water and wastewater services. It’s the third-largest investor-owned publicly-traded water utility in the United States and serves about two million people.

York Water Company (NASDAQ: YORW)

The York Water Company is a utility company that operates in Pennsylvania, United States. The company serves about 190,000 customers through approximately 66,000 service connections across 48 municipalities.

Invesco Water Resources ETF (NASDAQ: PHO)

The Invesco Water Resources ETF is based on the Nasdaq OMX US Water Index. The fund tracks the performance of companies that create products designed to conserve and purify water for homes, businesses and industries.

Invesco S&P Global Water Index ETF (NYSEARCA: CGW)

This fund is based on the S&P Global Water Index. Companies in this index include utilities, infrastructure, equipment, instruments, and materials related to the water industry.

iShares Global Water UCITS ETF (LON: IH2O)

This ETF tracks the performance of an index composed of 50 of the largest global companies engaged in water-related businesses

Ecofin Global Water ESG ETF (NYSEARCA: EBLU)

This fund invests in companies that get at least 50% of their revenues from water industry-related activities or at least 40% of their revenues from the water industry. They must be ranked in the top five companies by total revenue derived from any one water sub-industry, and their principal source of revenue must come from the water industry.

How can I buy water stocks and ETFs?

Once you have researched and analyzed the stocks and ETFs you are interested in, it’s relatively easy to purchase shares. Here are steps to get you started:

  1. Find a brokerage firm. Online is ideal. Your account can be opened and funded in just a few days once your personal information is verified.

  2. Place an order for the stock according to your investment objectives: market, limit, stop order or buy stop order are common orders used to buy shares

  3. Wait for confirmation that your order has been received and completed

  4. Continue to watch the performance of your stocks and ETFs. Make adjustments to your portfolio as needed.

Bottom line

Investing in water stock and ETFs could be a way to hedge your portfolio against losses and inflation. However, there are no guarantees. Even if there’s lots of buzz surrounding a company or industry, doing your own analysis can choose the best water stocks and ETFs for your personal investing framework.

Last Updated September 7, 2021

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