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

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option 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.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

PHO is managed by Invesco, and this fund has amassed over $2.14 billion, which makes 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

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.59% for this ETF, which makes it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 0.53%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Industrials sector - about 57.9% of the portfolio. Utilities and Information Technology round out the top three.

Taking into account individual holdings, Ecolab Inc (ECL) accounts for about 7.83% of the fund's total assets, followed by Roper Technologies Inc (ROP) and Ferguson Enterprises Inc (FERG).

PHO's top 10 holdings account for about 58.22% of its total assets under management.

Performance and Risk

The ETF has added roughly 2.66% so far this year and is up roughly 7.14% in the last one year (as of 02/04/2026). In the past 52-week period, it has traded between $58.13 and $74.61

PHO has a beta of 1.05 and standard deviation of 16.10% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 39 holdings, it has more concentrated exposure than peers .

Alternatives

Invesco Water Resources ETF is a reasonable option for investors seeking to outperform the Industrials ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Invesco S&P Global Water Index ETF (CGW) tracks S&P GLOBAL WATER INDEX and the First Trust Water ETF (FIW) tracks ISE Clean Edge Water Index. Invesco S&P Global Water Index ETF has $1.04 billion in assets, First Trust Water ETF has $1.94 billion. CGW has an expense ratio of 0.59% and FIW changes 0.51%.

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.