Bet on Natural Gas With a Water ETF

Today, four ETFs provide investors with pure-play exposure to companies both domestic and abroad that are working to ensure that the world's population has access to adequate sources of water.

Investors looking for exposure to U.S.-listed water companies should turn to the First Trust ISE Water Index Fund(FIW) or the PowerShares Water Resources Portfolio(PHO). Both of these instruments boast an equal-weighted index. Both charge a 0.60% expense ratio, and FIW has outperformed in 2010. However, FIW's volume is on the low side, and most investors should stick with the more liquid PHO.

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Investors desiring a more geographically diverse water portfolio should look to the Claymore S&P Global Water Index ETF(CGW) or the PowerShares Global Water Resources Portfolio(PIO). Although the U.S. makes up the largest single geographic slice of both funds, these ETFs also boast exposure to companies hailing from countries such as Canada, Japan and Europe.

Because of their international exposure, these two instruments carry higher fees: 0.65% for CGW and 0.75% for PIO. This year, having access to international water players has not paid off. Both CGW and PIO have consistently underperformed their domestically focused cousins.

Ultimately, I would advise investors looking for a play on water to stick with the strong, liquid PHO.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion had no positions in securities mentioned.

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