Is Invesco Water Resources ETF a Strong ETF Right Now?

The Invesco Water Resources ETF PHO was launched on 12/06/2005, and is a smart beta exchange traded fund designed to offer broad exposure to the Industrials ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Managed by Invesco, PHO has amassed assets over $2.18 billion, making it one of the larger ETFs in the Industrials ETFs. This particular fund seeks to match the performance of the NASDAQ OMX US Water Index before fees and expenses.

The NASDAQ OMX US Water Index tracks the performance of US exchange-listed companies that create products designed to conserve and purify water for homes, businesses and industries.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.60%.

It has a 12-month trailing dividend yield of 0.48%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Industrials sector - about 54.60% of the portfolio. Utilities and Information Technology round out the top three.

Looking at individual holdings, Ecolab Inc ECL accounts for about 8.34% of total assets, followed by Roper Technologies Inc ROP and Danaher Corp DHR.

PHO's top 10 holdings account for about 59.26% of its total assets under management.

Performance and Risk

The ETF has added about 10.56% so far this year and is up about 18.40% in the last one year (as of 07/15/2024). In the past 52-week period, it has traded between $49.77 and $68.93.

The ETF has a beta of 0.98 and standard deviation of 19.07% for the trailing three-year period, making it a medium risk choice in the space. With about 41 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco Water Resources ETF is an excellent option for investors seeking to outperform the Industrials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Invesco S&P Global Water Index ETF CGW tracks S&P GLOBAL WATER INDEX and the First Trust Water ETF FIW tracks ISE Clean Edge Water Index. Invesco S&P Global Water Index ETF has $998.24 million in assets, First Trust Water ETF has $1.74 billion. CGW has an expense ratio of 0.56% and FIW charges 0.53%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Industrials ETFs.

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