Next to global warming, the concern over water shortages is the topic of the day and exchange-traded funds tapping into this concern are trickling into the marketplace. New water ETFs include First Trust ISE Water Index Fund (AMEX: FIW) and Claymore S&P Global Water Index ETF (AMEX: CGW). Over a year old now, PowerShares Water Resources Portfolio (AMEX: PHO) has attracted considerable press attention.
If you look under the hood of these water ETFs they are dominated by water utilities. Not much to get excited about there except stable earnings and reasonable dividends. Other water companies include engineering firms, and equipment manufacturers. Will McClatchey, Editor of ETFzone points out that PHO emphasizes smaller firms due to it equal-weighted index while FIW sticks to a more traditional market-cap weighted index, so one can expect PHO to gain more exposure to pure water activity.
Keep in mind that globally, water prices are quite sensitive to political pressure and normally water is priced way below its real cost or value. In some emerging markets, as much as 50% of the water is not even paid for serving as an indirect subsidy to consumers.
By Carl Delfeld of the Chartwell ETF Advisor