Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the water industry to thrive over time, as our global population grows and needs more and more clean water, the Guggenheim S&P Global Water Index ETF (NYS: CGW) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in a lot of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The Guggenheim ETF's expense ratio -- its annual fee -- is 0.70%. That's higher than many ETFs, but still lower than the typical stock mutual fund.
This ETF doesn't have the most impressive performance, slightly lagging the S&P 500 over the past three years, but it's the future that matters most. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a very low turnover rate of 8%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do. The fund is fairly small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
What's in it?
Several water-related companies had strong performances over the past year. Pentair (NYS: PNR) , which is involved in water treatment, among many other things, surged 16%, partly on its plans to merge with Tyco's flow-control business.
Aqua America (NYS: WTR) gained 4%, slowly but surely increasing its top and bottom lines and its ranks of customers. It's also investing in its infrastructure. Some are excited about its plans to supply water to some natural-gas fracking operations, as that could boost results, but others worry about the environmental and public-relations impact of that move.
Danaher (NYS: DHR) , meanwhile, advanced 2%; it offers investors exposure to water-related operations as well as others, such as medical products. Bulls like its skill in acquisitions, such as last year's purchase of diagnostic equipment maker Beckman Coulter. Its recent quarterly report, featuring revenue and earnings up 30% and 43%, respectively, also didn't hurt.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Itron (NAS: ITRI) , which makes smart water meters, sank 20%. It's poised to benefit in the years to come, though, as water-related infrastructure will need to be updated. Its four-millionth smart meter was recently installed, and it recently introduced its "Green Button," giving consumers easier access to their usage data. Itron has been restructuring itself, closing some facilities and focusing on improving its efficiency. The White House supports the Green Button initiative, too.
The big picture
Demand for water isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
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