Written by Gary Gordon, MS, CFP® of www.ETFexpert.com
Ever
since Powershares first introduced the PowerShares Water Resources Portfolio
(PHO), other sponsors have
endeavored to capitalize on investor interest. Claymore served up the Claymore S&P Global Water Index
Fund (CGW)
in an effort to capture the demand for water services worldwide. Meanwhile,
First Trust staked out territory with the First Trust ISE Water Index Fund
(FIW), attempting to further the
idea that drinking water and waste services are growing rapidly.
Yet
the more that you read about H-2-O, the more that you hear different reasons
for investing in it. One argument is that water may be the most precious of all
commodities on the international stage. People need to drink clean fluids. And,
all food products that come from agricultural activity require irrigation as
well as drinking water for the livestock.
Still,
if water demand acted like the commodity, you might have expected PHO or CGW or
FIW to be running high in 2008. Instead, the Dow Jones AIG Total Commodity Index Fund (DJP) garnered 15% in 2008, while
the PowerShares
Water Resources Portfolio (PHO) has struggled to break even.
(And that's after falling 10% in January alone!)
Perhaps pundits would better serve their readers by examining what the various
water investments really represent. Specifically, the PowerShares Water Resources
Portfolio (PHO)
represents an investment in infrastructure.
What is
infrastructure exactly? It incorporates everything a society may do to turn
on electricity, build roads, establish communication networks, potable water
delivery and yes... the creation/maintenance of sewage systems.
We
can see from the graph below that the iShares Infrastructure Fund
(IGF), the iShares Global Utilities Fund
(JXI) and the PowerShares Water Resources
Portfolio (PHO)
are following a very similar path in the last 3 months. Indeed, this supports
the notion that, while companies that deal in H-2-O may not chart an identical
path to the diversified world of infrastructure and utilities, the similarities
are there.
Normally, I might favor the diversification that comes with broader ETFs. Yet
the volume on the iShares
Infrastructure Fund (IGF) is painfully low and Global Utilities
(JXI) has a more traditional
market-cap (larger company) weighting.
If
you accept the notion that there's an ongoing need for water services...
If you believe that the need is expanding overseas rapidly...
If you think that Jim
Cramer has it right on his long-term bull markets, one
of which is infrastructure...
Then
the equal-weighting structure of PHO across company size makes sense. Small-
and mid-sized companies in the PowerShares Water Resources Portfolio
(PHO) give it an edge when it
comes to rapid-fire growth.
Disclosure
Statement: ETF Expert is a web log ("blog")
that makes the world of ETFs easier to understand. Pacific
Park Financial, Inc., a Registered Investment Advisor with
the SEC, may hold positions in the ETFs, mutual funds and/or index funds
mentioned above. Investors who are interested in money management services may
visit the Pacific Park Financial, Inc. web site.
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