ETF

Catch a New Wave in Water ETFs

 

The standard deviation of CGW's back test is lower than PHO's, which means the former is likely to be less volatile than the latter. For three years, it's 10.81% vs. 15.31%, and for five years it's 13.84% vs. 15.31%.

After my column on PHO, it enjoyed a very good run, rallying more than 20% in about six months. It then gave back all those gains in the following four months and now is up 25% since its low last July. While the modest outperformance has been nice, I believe the expectation for this theme to play out and add value to a portfolio should be in terms of years.

Water ties in with infrastructure, and while potable water is arguably the most important commodity on the planet, the decisions to spend on this sort of infrastructure may be slower in coming than investors would like.

That said, my initial reaction to CGW is positive -- so much so that I'm considering a switch from PHO. But I don't expect to buy CGW as quickly as I did PHO. The early PHO purchase worked out for me, but usually it makes sense to let new products season for a while -- say three to six months, to get a feel for how its volatility works out in the real market -- before hopping on board.

>To order reprints of this article, click here: Reprints

As originally published, this column contained an error. Please see Corrections and Clarifications.

At the time of publication, Nusbaum was long PowerShares Water Portfolio as a client and personal holding, and Suez for client accounts only, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.

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