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

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Making its debut on 12/06/2005, smart beta exchange traded fund Invesco Water Resources ETF (PHO - Free Report) provides investors broad exposure to the Industrials ETFs category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

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

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

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.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

Managed by Invesco, PHO has amassed assets over $1.81 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

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.59%.

It has a 12-month trailing dividend yield of 0.67%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 53.30% of the portfolio, the fund has heaviest allocation to the Industrials sector; Utilities and Information Technology round out the top three.

Taking into account individual holdings, Ecolab Inc (ECL - Free Report) accounts for about 8.31% of the fund's total assets, followed by Roper Technologies Inc (ROP - Free Report) and Xylem Inc/ny (XYL - Free Report) .

PHO's top 10 holdings account for about 60.42% of its total assets under management.

Performance and Risk

The ETF has gained about 6.70% so far this year and is up roughly 21.92% in the last one year (as of 06/26/2023). In the past 52-week period, it has traded between $45.70 and $55.72.

The fund has a beta of 0.96 and standard deviation of 19.87% 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 $977.95 million in assets, First Trust Water ETF has $1.37 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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