I like Invesco Global Water ETF (Nasdaq: Pew) as a long-term consideration of the global issue its equity holdings are trying to solve. However, it’s not a loud buy at this point, so I’m classing it as a Hold. But there is something different It’s about this water ETF that I think many investors will want to know by now, in order to be in a position to buy it at a better long-term valuation.
Water sustainability is an unavoidable global issue. But it’s also complicated. That in itself makes me see a case for monitoring ETFs that aim to track the performance and progress of stockpiles that are an essential part of providing safe and potable water around the world.
In 2015, the United Nations adopted the Sustainable Development Goals [SDG]which has set targets for improving 17 so-called “core competencies” by 2030. The goal of the United Nations is To try to allow as much of the world’s population as possible to enjoy the prosperity that comes from having some basic elements of life that those in advanced economies would probably take for granted on a daily basis.
The sixth goal out of these 17 is “clean water and sanitation”.
We often take water for granted; Its high degree of rarity has gone from being a truly global issue to be faced. I think this should eventually translate into more interest and investment in companies that are part of the solution.
This may seem like a simple climate change issue, but this is not the case. Drought and pollution are certainly factors, but a water crisis can be as simple as rapid population growth, and not having enough water to make it through.
There are many water ETFs out there, but what I find particularly attractive about Invesco’s PIO is that it not only focuses on the issue of water, but on the key role of technology in helping to deliver solutions. When I invested in water stocks in the past, they were just utilities that were in the business of providing water, rather than electricity or natural gas.
The PIO ETF tracks the Nasdaq OMX US Water Index, which invests in companies that are in the business of conserving water and making it suitable for drinking, washing, and more.
An Undiscovered ETF covers the waters differently
With assets under management of approximately $265 million, this PIO fits my definition of an “undiscovered” ETF. This, despite the fact that it has been trading since 2007. So, it is clear that this ETF and the UN core competency that it is targeting has not amassed a huge fan base, as opposed to many other industries and sectors.
This is a global publicly traded corporation, evidenced by the fact that nearly half of its assets are invested in non-US stocks. The United States makes up 55% of the PIO, the United Kingdom 14%, but no other country accounts for as much as 8%.
As mentioned earlier, this isn’t just a utility ETF in disguise. While utilities make up 20% of the PIO, the industrial sector is by far the largest, with a whopping 55% of assets. This speaks directly to the difference in this water ETF versus some others. He is more interested in having stocks that solve the water problem in the long term, rather than those that currently play the role of a delivery mechanism for those who enjoy healthy water (ie utility stocks).
With a weighted average market capitalization of more than $30 billion, PIO can be considered a great capital ETF, albeit with a very narrow specialization. It currently owns 48 stocks, but with the top 10 stocks making up just over 50% of the fund, those stocks tend to drive returns here.
PIO is not a mass-traded ETF, despite its reasonable asset level. Its average daily volume is only about $325,000, which is less than 0.2% of the assets under management. Translation: People who own a PIO tend to be long-term bearers.
Water companies of the kind PIO owns aren’t very high returns, as evidenced by the fund’s meager 1.8% dividend yield. It’s also not particularly cheap fundamentally, with a P/E ratio on the delayed 12-month earnings of about 22 times.
Technology focus has the potential to turn losing peers into winners in the long run
As the table below shows, PIO is the most expensive and worst performing ETF in your chosen water peer ETF. So why on earth (3/4 water by the way!) am I writing about this? Since its focus is on stocks that use technology to try and produce better water, as opposed to water utilities, it prompts me to look at a potential PIO that should take advantage of the long-term lift that technology provides to every business nowadays.
And while I can’t currently mention an AI-related angle here, I’ll probably nail one at some point. Either way, if I were to track a water-related investment in an ETF model, I’d prefer this more interesting investment than a utility ETF short for regional water companies.
The 0.75% expense ratio might be a turn off for some investors, but not for me. I really think investors overemphasize this statistic, at least when it comes to sector and industry ETFs. If an ETF does something I like, or offers it build a portfolio that appeals to me, and has long-term upside potential against the broad stock market, I honestly don’t care if it costs a little more. By investing in thematic ETFs like these, I believe we get what we pay for.
I’m rating PIO at the moment, but I would expect it to be a relatively low-volatility fund in the equity world, once the market hits a recession, and many industries and sectors are, shall we say, “all wet.”