Summer is the season for cold drinks. It's also the time of year when droughts worsen, putting the spotlight on water infrastructure and investment opportunities.
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Speaking of those themes, the Summit Water Infrastructure Multifactor Exchange Traded Fund (NYSE: WTRX) commenced trading Wednesday. The newest addition the water ETF segment follows the Summit Zacks Global Water Index.
WTRX's underlying index can hold 30 to 50 companies engaged in the global water industry. Specifically, the underlying index will utilize a rules-based indexing methodology to incorporate fundamental factors that have been strong historical indicators of the long-term performance of water equities, according to ETF Trends.
As opposed to passive water indices that are constructed through various measures of market capitalization, equities are selected for inclusion in the Index by a proprietary formula of relevant company fundamentals including measures of price/earnings, intrinsic value, and return on capital, Matt Dickerson, CEO of Summit Water Capital Advisors, said in a press release. Through this methodology, the Index targets a more balanced and representative exposure to the global water industry that encompasses several world markets and broader capitalization levels, as opposed to a less-diversified basket of the largest, most expensive stocks.
WTRX features some screening criteria to limit exposure micro-cap water names while potentially enhancing the ETF's liquidity. For example, the new ETF's holdings must have a minimum market value of at least $200 million prior to inclusion. Additionally, WTRX holdings must have a three-month average daily dollar volume of at least $400,000.
WTRX and its underlying index are departures from existing water ETFs on the market today as the new ETF represents the first smart beta approach in the space.
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As opposed to the passive water indices currently published that are constructed through various measures of market capitalization, equities are selected for inclusion in the Index by a proprietary formula of relevant company fundamentals including measures of price/earnings, intrinsic value, and return on capital. Through June 30, 2016, year-to-date gross total returns for the Index were 10.78% versus 3.82% for the NASDAQ OMX Global Water Index, according to California-based Summit.
WTRX charges 0.8 percent per year, or $80 on a $10,000 investment.
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