Should You Invest in the First Trust Water ETF?

Launched on 05/08/2007, the First Trust Water ETF FIW is a passively managed exchange traded fund designed to provide a broad exposure to the Industrials - Water segment of the equity market.

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Industrials - Water is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 13, placing it in bottom 19%.

Index Details

The fund is sponsored by First Trust Advisors. It has amassed assets over $1.76 billion, making it one of the larger ETFs attempting to match the performance of the Industrials - Water segment of the equity market. FIW seeks to match the performance of the ISE Clean Edge Water Index before fees and expenses.

The ISE Clean Edge Water Index is a modified market capitalization-weighted index comprised of exchange-listed companies that derive a substantial portion of their revenues from the potable and wastewater industry.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.53%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 0.61%.

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 53.60% of the portfolio. Utilities and Healthcare round out the top three.

Looking at individual holdings, Veralto Corporation VLTO accounts for about 4.71% of total assets, followed by American Water Works Company, Inc. AWK and Ecolab Inc. ECL.

The top 10 holdings account for about 39.51% of total assets under management.

Performance and Risk

Year-to-date, the First Trust Water ETF return is roughly 9.14% so far, and is up about 20.28% over the last 12 months (as of 09/12/2024). FIW has traded between $77.30 and $107.61 in this past 52-week period.

The ETF has a beta of 1.02 and standard deviation of 19.40% for the trailing three-year period, making it a medium risk choice in the space. With about 37 holdings, it has more concentrated exposure than peers.

Alternatives

First Trust Water ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FIW is an excellent option for investors seeking exposure to the Industrials ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

Invesco S&P Global Water Index ETF CGW tracks S&P GLOBAL WATER INDEX and the Invesco Water Resources ETF PHO tracks NASDAQ OMX US Water Index. Invesco S&P Global Water Index ETF has $981.69 million in assets, Invesco Water Resources ETF has $2.17 billion. CGW has an expense ratio of 0.56% and PHO charges 0.60%.

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