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I am not a financial advisor. This post is to provide information and not provide financial product advice. I discuss why I personally chose to invest in a stock, ETF, REIT, investment fund or cryptocurrency (which I have held for over a week) and also share information that is public about the following stock, ETF, REIT, investment fund or cryptocurrency and they are based on my own personal opinion.
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I do not work in the financial industry, so just because I write about it, doesn’t mean you should own it. So, consult with a financial advisor and do your due diligence, RESEARCH!
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One of the more interesting ETFs I have in my portfolio is the First Trust Water ETF (NYSE: FIW).
First Trust Portfolios L.P. and its affiliate First Trust Advisors L.P. (collectively “First Trust”) were established in 1991 with a mission to offer trusted investment products and advisory services.The company has a belief towards long-term investors and a belief in rebalance and controlling taxes and the strategy of their ETF’s and for FIW, the strategy is as follows:
The investment seeks investment results that correspond generally to the price and yield (before the fund’s fees and expenses) of an equity index called the ISE Clean Edge Water Index.The fund will normally invest at least 90% of its net assets (including investment borrowings) in the common stocks and depositary receipts that comprise the index. The index is designed to track the performance of small, mid and large capitalization companies that derive a substantial portion of their revenues from the potable water and wastewater industry, according to Clean Edge.
I think a lot of people take advantage of water. Sure, people know its important for our planet, for all living things, but when it comes to clean water, you have to believe in the companies who specialize in water technology.
This passively managed ETF features 38 holdings in Pentair PLC, Xylem Inc., IDEX Corp., Roper Technologies Inc. Danaher Corp., Essential Utilties Inc., Agilent Technologies Inc., American Water Works Co. Inc. Ecolab Inc. A.O. Smith Corp.
For those who are looking for an ETF for the utility sector, water is one of the 16 broad Zacks sectors within the Zacks Industry classification.
According to Zacks:
According to the 2020 United Nations Water Resources Development Report, entitled “Water and Climate Change,” global water use has grown six fold in the last 100 years, and continues to increase at a constant rate of 1% per year, mainly due to economic development, population growth, and changes in consumption patterns.
And for me, this is the kicker from Zacks:
On the other hand, water scarcity has been rising with climate change, pollution, poor sanitation, an ever-expanding population, and increasing consumption. Wastewater runoff from agriculture, industry and expanding cities, especially in developing nations, is another major issue. Per the United Nations estimates, about 2.2 billion people lack access to drinking water and 4.2 billion lack a proper sanitation system. The agency estimates that nearly two-thirds of the planet could experience water shortage in the next few years. Per the World Health Organization, one billion people lack access to drinking water and 3-4 billion cannot rely on a sufficient or dependable water supply.
Though about 80% of our planet is covered by water, only 1% can be used for drinking. With clean water becoming an increasingly scarce resource, water is more valuable than it’s been in decades. Thus, the number of companies and government across the globe has increased their spending on water and wastewater treatment equipment. The U.S. government is investing heavily in water infrastructure with new technologies to extract, purify, discover and deliver water. PricewaterhouseCoopers estimates that private spending on drinking water infrastructure will reach $60 billion by 2027. Over the next 25 years, total spending on wastewater treatment alone will exceed $10 billion per year.
source: schwab.com
Looking at the ETF, it has progressively went up since 2016, with the pandemic of 2020 affecting the ETF dipping but in July, everything starting to move back up to its highest level earning now around $81.22 as of today.
source: schwab.com
Featuring total assets of $934.4 million, and a gross expense ratio of 0.54%.
The distribution of dividends, where you see it going small and then growing, with FIW, the dividend fluctuates each quarter.
2020 is not a good litmus test due to the pandemic but Q1 was .07, Q2 was .11, Q3 was .09 and Q4 was .12, while it dropped to a low for Q1 at .05.
Morningstar Ratings gives it a 5 star rating, with Market Edge Ratings giving it a Long and power rating at 80. Morningstar gives it a low risk rating, while Zack’s gives it a medium risk rating.
It’s important to note that FIW is not the only water ETF out there, there is Invesco Water Resources ETF (NASDAQ: PHO) and Global X Clean Water ETF (NASDAQ: AQWA). With the former offering a dividend, the latter currently doesn’t.
And similar to FIW, PHO also has fluctuating dividends, with no dividend offered in Q1 of 2019. Pho does have more in total assets at $1.6 billion and Morningstar also giving PHO a five star rating.
But in terms of comparison between FIW and PHO, both are similar with FIW (in orange) being a bit higher (as one can see on the chart below):
source: schwab.com
And because of FIW’s performance, I decided to go with FIW. But Invesco does offer a global water index (CGW) and another global water ETF (PIO), also for Ecofin Global Water ESG Fund (EBLU) offers global coverage as well.
But I do believe that if things don’t change, there will be an even more scarcity of water and the importance of water sanitation will grow. But there are communities in America facing shortage, this is surprising to many, considering how easy it is to have water but certain communities are not as lucky. I have seen it happen in California a few years ago with Porterville, California being hit hard during the drought.
And California’s drought issues with climate change is concerning and the importance of water conservation being reminded to us in California is always ongoing.
So, it’s what led me to looking into water-based ETF’s and FIW being the first that I decided to invest in.
As always, perform due diligence and do a lot of research before investing. Talk to a financial advisor and find out if First Trust Water ETF (NYSE: FIW) is a perfect investment for you.
