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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?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is managed by Invesco. PHO has been able to amass assets over $1.79 billion, making it one of the larger ETFs in the Industrials ETFs. PHO, before fees and expenses, 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

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Annual operating expenses for PHO are 0.59%, which makes it on par with most peer products in the space.

It's 12-month trailing dividend yield comes in at 0.47%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

For PHO, it has heaviest allocation in the Industrials sector --about 51.90% of the portfolio --while Utilities and Healthcare round out the top three.

When you look at individual holdings, Ferguson Plc (FERG - Free Report) accounts for about 8.93% of the fund's total assets, followed by Roper Technologies Inc (ROP - Free Report) and Danaher Corp (DHR - Free Report) .

Its top 10 holdings account for approximately 56.97% of PHO's total assets under management.

Performance and Risk

So far this year, PHO has added roughly 3.67%, and is up about 7.47% in the last one year (as of 02/24/2023). During this past 52-week period, the fund has traded between $43.41 and $55.50.

The fund has a beta of 0.96 and standard deviation of 27.26% for the trailing three-year period, which makes PHO a medium risk choice in this particular space. With about 38 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 $976.14 million in assets, First Trust Water ETF has $1.30 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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