According to the World Resources Institute, global water consumption grew at twice the rate of the population during the 20th century.Hydrogen Ventures estimates that $660 billion will be needed for water infrastructure in the next 20 years. There's a variety of companies seeking to capitalize on this potentially lucrative water theme, from $376 billion market-cap behemoths like General Electric ( GE) to $290 million micro-caps like Layne Christensen ( LAYN). The challenge for investors is that GE's water business is a long way from having a meaningful impact on the entire company, and one little misstep from a micro-cap like Layne could result in a major blowup. Seeing the potential for the water sector, PowerShares has contracted to create the PowerShares Water Resources Portfolio ( PHO), a new exchange-traded fund that is based on the Palisades Water Index (ZWI). PHO is scheduled to list and begin trading on the American Stock Exchange on Dec. 6 (today). To evaluate this ETF, I plugged its components into Morningstar's portfolio tracker. PHO has a median market cap of $1.6 billion, which isn't that surprising given that 40% of the fund is small-cap growth and 24% is small-cap value. Earnings for the inaugural version of the portfolio are expected to grow 12% faster than the S&P 500. PHO does have a few mega-cap conglomerates in the mix, including GE, 3M ( MMM) and Siemens ( SI), but those three have only 0.80% respective weightings. PHO is heaviest in the industrial sector, 49%, and utilities, 33%. Morningstar places the portfolio's yield at 1.5%, and PowerShares has capped the expense at 0.60%, which implies a yield of 0.90%. However, this is my calculation only, and PowerShares has not announced a dividend.
|Palisades Water Index (ZWI) and iShares Russell 2000 (IWM) |
|Source: Your Source Financial|