There are about 10 dedicated infrastructure exchange traded funds on the market today. Throw in water-specific funds and the number inches closer to 15. Yet a time when investors hear so much about droughts and dilapidated infrastructure in both the developed and emerging worlds, few of these ETFs are doing much to reward investors in 2015.
Typically, the water investment thesis revolves around the need for improved fresh water infrastructure and resources in the developing world, but water exchange traded funds are usually chock full of developed market companies.
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That includes the $237.3 million PowerShares Global Water Portfolio (NYSE:PIO), an ETF that has been around since mid-2007.
"While we in North America tend to take fresh water resources for granted, fresh water is an increasingly scarce commodity in other parts of the world. There is a fixed amount of water available worldwide, with 97.5% of it in the form of salt water unfit for human consumption. Of the remaining 2.5%, more than two-thirds of it is frozen in ice caps.The worlds population now stands at roughly 7.3 billion, and is expected to grow by a third to 9.7 billion by 2050.2 The United Nations estimates that only 1% of the worlds fresh water supply is accessible enough to meet the needs of a rapidly expanding world population,"according to a recent note from PowerShares.
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Like rival infrastructure ETFs, PIO has struggled this year, losing 6.3 percent. However, PIO has been one of the best-performing infrastructure ETFs over the past five years, gaining just over 15 percent. Home to 35 stocks, PIO follows the NASDAQ OMX Global Water Index.
PIO is reflective of the aforementioned developed market tilt as the US and the UK combine for 59 percent of the ETF's weight with France and Switzerland combining for another 20 percent. As is the case with most water ETFs, PIO's holdings hail from multiple sectors. A combined 85 percent of PIO's holdings are utilities or industrial stocks, but the ETF also features small allocations to technology and healthcare names.
More than 90 percent of PIO's holdings are large- or mid-caps. For long-term investors, there is some allure based on the fact that developing world governments are expected to increase water-related spending.
"As a result, emerging market governments are funneling large amounts of capital into areas like water conservation, purification and infrastructure. Over the past decade, water infrastructure spending has grown rapidly in both absolute terms and as a percentage of gross domestic product (GDP) in most emerging markets. Emerging markets now account for half of all infrastructure spending worldwide," adds PowerShares.
PIO charges 0.76 percent, or $76 per $10,000 invested, a year.
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