Investing in Water: Understanding Water ETFs and the Growing Demand

In some ways, you can't go wrong with water ETFs, especially since water is essential to survival. With the ever changing environment water is becoming more and more scarce. It, like other natural resources, is decreasing as the human population and consumption increases. The overwhelming impact of continued industrialization is further depleting water sources. As a result, there will always be a value on the commodity. This high demand and consumption of water makes it a lucrative investment.

Water ETF Defined

A water ETF is basically a fund that invests into water industry companies. Those companies may be water utilities, water treatment companies, and even retail or distribution companies. Water ETFs can be comprised of US companies, international companies, or a combination incorporating companies across the globe.

How They Work

Water ETFs track various water industry indexes. Based on the indexes, the ETF invests a major portion of its funds into the particular stocks. A great advantage is that stocks can be purchased and redeemed anytime throughout the trade day. This is unlike mutual funds, which are settled at the end of trade day.

Water ETF Holdings:

Below is a list of a few companies associated with water ETFs.

1. American States Water (AWR) -- Parent company of Golden State Water Company, Chaparrel City Water Company, and American States Utility Services. Its primary function is the purchasing, distribution, and selling of water and electricity.
2. Companhia De Sanea (SBS) -- Provides sanitation services in Sao Paulo, Brazil.
3. Aqua America (WTR) -- Provides water and waste services throughout the US.
4. Layne Christensen (LAYN) -- A US-based water drilling, resource exploration company.
5. Franklin Electric (FELE) -- Global company that specializes in water systems and fuel systems, as well as their components.

Why Invest in Water ETFs

There are several reasons that water ETFs are so attractive to investors. The first is because of demand. This demand is ever-increasing due to the rise in populations around the world. The very necessity for water translates to profit for investors.

In addition, there is an increase in infrastructure creation and updates that is allowing more people access to water. Developing countries or third-world nations can now access quality water for their citizens. This expansion in access further adds to the demand.  

Also, water ETFs can be a long-term investment. Why? Because there is virtually plenty of water. Even though an increase in demand is affecting water supplies, there is still enough water available for many years to come. The water supply will outlive the investors.

Take the Plunge

With water ETFs being so attractive to investors many are catching the wave, or at least learning to float. Others are diving all in to take advantage of what could be a tremendously lucrative investment. Before you take the plunge, though, be sure to understand fully what water ETFs are and how they work. Do your research to grasp the pros and cons of such an investment. Ask the appropriate questions from the right people.