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Monday, December 17th, 2012
water water

12 1217 zCGW zPHO zPIO zFIW

Five years ago, water was a hot theme and four ETFs had been created for investors who wanted to capitalize on that theme.  The chart shows the performance for each since the start of 2008 — and it is oddly symmetrical, with FIW up 21%, PIO down 21%, and CGW and PHO unchanged.

Environmental investing has gotten popular again lately and the water theme is on the rise.  Check out Bob Seawright’s posting on the issues and a piece from Financial Advisor on the ETFs.

As with any bunch of ETFs for a particular theme, looking at the details of the vehicles rather than just past performance is critical.  In this group you have different geographic concentrations and different weighting schemes, although the fees are relatively similar.  It also pays to evaluate each on a “look through” basis, assessing the attributes of the underlying securities as well as the ETF itself.

During the period of this chart, the S&P 500 was up 10%, so water as a theme has generally underperformed, in spite of strong results over the last year.  The big “dip” in the market in 2008 brought with it a realization that global growth would be subdued for quite a while, pushing water problems further into the future.

It will be very interesting to see what happens during the next recession.  Will water stocks get hit hard again or will they show a resilience which indicates that the secular play has begun in earnest?  (Chart:  Bloomberg terminal.)

There’s another new “research puzzle” blog, based on Tumblr.  It features short pieces from the investment scrapbook.  The first postings included looks at Warren Buffett and growth promises, structured notes on Apple stock, and the return of PIK-toggle bonds as investors reach for yield (and get careless regarding covenants).  Check it out.