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Is Invesco Water Resources ETF (PHO) a Strong ETF Right Now?

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A smart beta exchange traded fund, the Invesco Water Resources ETF (PHO - Free Report) debuted on 12/06/2005, and offers broad exposure to the Industrials ETFs category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

The fund is managed by Invesco. PHO has been able to amass assets over $2.05 billion, making it one of the larger ETFs in the Industrials ETFs. Before fees and expenses, PHO seeks to match the performance of the NASDAQ OMX US Water Index.

The NASDAQ OMX US Water Index tracks the performance of US exchange-listed companies that create products designed to conserve and purify water for homes, businesses and industries.

Cost & Other Expenses

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Operating expenses on an annual basis are 0.60% for this ETF, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 0.56%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

PHO's heaviest allocation is in the Industrials sector, which is about 60.90% of the portfolio. Its Healthcare and Information Technology round out the top three.

When you look at individual holdings, Ferguson Plc (FERG - Free Report) accounts for about 8.27% of the fund's total assets, followed by Veralto Corp (VLTO - Free Report) and Danaher Corp (DHR - Free Report) .

PHO's top 10 holdings account for about 59.97% of its total assets under management.

Performance and Risk

The ETF has added about 5.60% so far this year and is up about 24.41% in the last one year (as of 03/15/2024). In the past 52-week period, it has traded between $49.77 and $64.82.

The ETF has a beta of 0.98 and standard deviation of 19.09% for the trailing three-year period, making it a medium risk choice in the space. With about 40 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco Water Resources ETF is an excellent option for investors seeking to outperform the Industrials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Invesco S&P Global Water Index ETF (CGW - Free Report) tracks S&P GLOBAL WATER INDEX and the First Trust Water ETF (FIW - Free Report) tracks ISE Clean Edge Water Index. Invesco S&P Global Water Index ETF has $972.14 million in assets, First Trust Water ETF has $1.58 billion. CGW has an expense ratio of 0.57% and FIW charges 0.53%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Industrials ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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