ETF of the Week: Invesco Water Resources ETF (PHO)

“Just a couple of years ago, we saw the U.S. actually launch a California water futures market just so farmers could hedge the risk of increasing scarcity of resources,” Lydon says. “Upwards of 70% of surface water in areas like India and 70% of the water table in China have been deemed unfit for human consumption.”

Estimates by the World Economic Forum have concluded that more than $26 trillion will be spent on water provisions by 2030, reflecting the urgency of water scarcity and the growing need to find water solutions in a warming world.

PHO is based on the NASDAQ OMX US Water Index, which contains public companies within the water industry that focus on areas such as water utilities, machinery, life sciences tools and services, and many others.

Despite being a natural resources fund, PHO isn’t one to invest in the same way investors would allocate to more traditional resources funds related to materials or mining, explains Jaffe. Water scarcity and the water problem will be an ongoing one looking ahead, and PHO is a unique fund in its targeted approach to water companies and offers a portfolio diversification opportunity.

The fund has solid long-term performance, but because it falls somewhat within commodities and is thematic in nature, it is currently down with much of the rest of the market. Lydon believes that the investment into utilities helps provide some volatility mitigation for PHO.

“I’d look at it this way: everybody today, based on what’s going on around the world, has been forced to be very discerning about the components of their portfolio,” Lydon says. It’s a good fund if you are looking for an allocation “that would help diversify your portfolio, number one, but also allow you to take advantage of trends that may be developing.”

Allocating 3-5% of an investor’s portfolio from equities into PHO would give the portfolio diversification through its lack of correlation to the S&P 500, Lydon explains. PHO is one of the original ETFs launched that focused on investment in water-related companies and has outlasted almost every other fund within its category. This type of longevity is often overlooked within the ETF industry but deserves attention and reflects Invesco’s commitment to the thesis.

“At Invesco, they saw the merits of this theme, the water theme, over an extended period of time, and if you actually go into Invesco, there’s a whole suite in this category that tackles it in a variety of different ways,” Lydon adds.

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