ETF XRAY

Are Water ETFs a Mirage of Profits?

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

Norway Builds its Own Socially Responsible Fund

It is a shame that we don't have a Norway exchange-traded fund since the country and its stock market is riding the energy boom and in the process have built up a $300 billion in reserves. Not bad for a population of only 9 million. The Norwegian Government Pension Fund is getting attention as the New York Times describes its "ethically responsible approach" in allocating this monster nest egg.

On its black list are blue chip companies like Wal Mart, General Dynamics, Lockheed, Raytheon, Honeywell, Boeing and United Technologies. Most of these companies are excluded due to charges of unfair labor practices or weapons manufacture.

You can also use an exchange-traded fund to invest in what is being referred to as a socially responsible way. The iShares KLD Select Social (KLD) - holds 218 companies in the Russell 1000 and S&P 500 which have the highest social and environmental scores and exclude only tobacco companies while the
iShares KLD 400 Social (DSI) tries to give total exposure to companies that have positive environmental, social and corporate governance policies.

By Carl Delfeld of the Chartwell ETF Advisor