Should You Focus on Water Utilities during Market Turmoil?



Utilities in focus

Risk aversion has been a key focus for investors during the turbulent markets of 2016. Utilities have stolen the show this year, as they offer both steady capital gains and impressive dividends. Both electric utilities and water utilities have seen a sharp rise since the beginning of the year.


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Are water funds appealing?

Water utility ETFs showed an uptick in 2016 as investors focused on de-risking their portfolios. Investing in water utilities could be an attractive option for conservative investors considering their yields and stable stock movements. The importance of water as a commodity is expected to increase significantly in the coming years due to limited availability. The rising population, economic growth, and climate changes are likely to put increased pressure on already scarce water resources. Thus, technological advancements in water recycling or conservation will be significant. Investment in water technologies will bode well for utilities’ growth.

Water utility ETFs

The chart above shows the comparative price movement of water ETFs in the last one year. The Guggenheim S&P Water Index ETF (CGW), the PowerShares Water Resources Portfolio (PHO), the PowerShares Water Resources Portfolio (PIO), and the First Trust ISE Water Index ETF (FIW) are four leading water utility funds that invest in water-related businesses in the US and beyond. Though these ETFs have gained some ground this year, their one-year returns are flat to negative, underperforming broader equities.

Leading water utilities American Water Works (AWK), Aqua America (WTR), and Pentair (PNR) form a significant portion of these ETFs.


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