Daily, Individuals depend on 2.2 million miles of getting old water pipes, some laid earlier than the Civil Conflict, to ship life’s most important useful resource. This huge community is crumbling beneath our ft, requiring over $2 trillion in repairs and upgrades by 2043. But this infrastructure disaster isn’t nearly fixing what’s damaged – it’s about constructing for a future the place three-quarters of Earth’s land lots have gotten completely drier and excessive climate occasions are the brand new regular.
For traders, this convergence of pressing infrastructure wants and local weather adaptation creates each duty and alternative. However with choices starting from centered water ETFs to broader infrastructure funds, making the precise alternative isn’t easy. This information will aid you navigate the panorama of water infrastructure investing, weighing each the compelling case for sector-specific funding and the sensible challenges that include it.
The Volker Alliance estimates that the states already face an estimated backlog of practically $1 trillion for deferred upkeep and wanted upgrades to public infrastructure. In January 2025, “Not Constructed for This: The Argument for Infrastructure Investing in an Unstable Local weather” highlighted the case for infrastructure investments in your portfolio and the infrastructure funds, each open-end and exchange-traded, that could be value consideration. WABAC, a member of the MFO dialogue group, argued that “any dialogue of recent opportunistic infrastructure funds is incomplete with out mentioning water funds. Begin with PHO or FIW in case you are H2O curious. There are world water funds, however they’ve confronted rougher sledding over the previous three years. You possibly can begin with PIO and TBLU. I’m not sensible sufficient to think about how they could carry out within the tariff regime promised by our new president.” Since I take our board members’ insights severely, we’re providing this addendum on water infrastructure investing for you.
Water infrastructure contains consuming water, wastewater, and stormwater providers. There are two drivers of demand for funding in water infrastructure. First, we’ve allowed our present infrastructure to deteriorate. The American Society of Civil Engineers estimates that US water infrastructure wants, specifically, are big:
In 2024 alone, the projected hole between water infrastructure wants and spending in america shall be $91 billion; by 2043, the cumulative hole shall be over $2 trillion. (Bridging the Hole: The Energy of Funding in Water, Might 2024)
By their calculation, totally funding water infrastructure wants would generate “a $4.5 trillion achieve in GDP, the creation of 800,000 new jobs, and a $2,000 annual improve in family earnings.” Water funding autos allow participation in a sector the place each $1 million invested creates 10–15 jobs whereas addressing existential local weather dangers
Second, water-related infrastructure investments have gotten more and more essential as local weather instability intensifies water shortage, flooding, and ecosystem degradation. A sobering report launched in December 2024 finds that “human-driven local weather change is resulting in a everlasting state of elevated dryness on 77.6% of the Earth’s land lots, a gradual desiccation that has been enjoying out over the 30-year interval from 1990 to 2020” (“Three-Quarters of the Earth Has Gotten Completely Drier,” Time, 12/10/2024 reporting on the UN Conference to Fight Desertification, The World Menace of Drying Lands, 12/2024). This isn’t discussing drought, which is non permanent. It’s documenting a everlasting change within the water cycle. Within the US, the arid zone is shifting relentlessly eastward “without end” in line with scientists from Colorado State and the College of Michigan. Aridification is threatening meals safety, whereas excessive rainfall occasions are rising in frequency and depth. These developments will not be hypothetical, they’re occurring now, they usually demand sensible options. Investing in water infrastructure is about adapting to those realities, no matter their trigger. It’s about defending communities, economies, and the surroundings from the challenges we already face.
Infrastructure investments assist local weather resilience by improved water administration techniques, sustainable applied sciences, and pure infrastructure options like watershed restoration. Monetary devices like water-focused mutual funds and ETFs supply traders publicity to this important sector whereas contributing to long-term environmental stability.
Position in Local weather Resilience
Water infrastructure investments deal with three key local weather challenges:
- Adaptation: Supporting applied sciences like sensible water techniques and desalination crops
- Danger Mitigation: Restoring floodplains and wetlands to scale back catastrophe impacts
- Sustainability: Funding utilities and corporations enhancing water effectivity and recycling
These investments align with world priorities to modernize getting old techniques. Two questions stay:
- Does it make any sense to spend money on a water fund, versus a broader infrastructure fund?
- If it does make sense for you, which choices would possibly align along with your objectives?
Selecting broad or slim
The whole lot above helps investing in water sources, which undeniably profit from long-term tailwinds. Nevertheless, there are two parts of a case towards them.
First, traders misuse thematic funds. Jeff Ptak is the most recent in an extended line of Morningstar analysts to evaluate the efficiency of thematic / sector funds as a gaggle. Mr. Ptak checked out two metrics: (1) the timing of investor strikes into thematic funds and (2) the efficiency of these funds over the three years ending November 30, 2024. The outcomes weren’t fairly:
What I discovered is that, over these three years, the typical greenback invested in thematic funds misplaced round 7% per 12 months. Even if you take away the most important thematic fund―ARK Innovation ETF, which famously soared, gathered billions in belongings, after which fell like a stone―these funds nonetheless misplaced virtually 6% per 12 months in dollar-weighted phrases. To place that in perspective, the S&P 500 gained greater than 11% per 12 months over that span. (“What Does it Value to Be Entertained By Your Investments? Strive 14% a Yr,” Morningstar.com, 1/15/2025)
The issues had been manifold: the funds’ efficiency sucked, they cost lots and traders mistimed purchases. We, as a gaggle, purchased funds in areas that the analysts (and shills) had been hyping. Ptak’s suggestion: if you wish to spend money on a sector fund, decide the realm that Wall Road has written off for useless. With annualized returns, for the water funds beneath, -2.5% to three.2% over the previous three years, possibly water qualifies?
Second, broader funds would possibly get you there with much less fuss. Water funds are likely to deal with smaller, high-growth firms which generally don’t pay dividends. Meaning they are typically extra unstable and, therefore extra prone to scare off traders than the typical fairness. Different locations the place water investments lie, albeit in restricted amount, are infrastructure and utilities funds. The common infrastructure fund affords 5-15% publicity to water infrastructure investments. The common utility fund is about 3% “pure” water and 22% diversified utility firms which might possible have water infrastructure of their portfolios.
5-year snapshot, three peer teams, and three prime performers
The water group consists of the water-centered funds and ETFs beneath, whereas infrastructure and utilities are Lipper peer teams. Inside every group, we picked our top-ranked Nice Owl fund or greatest performer to assist reply the query, how good can it get?
| APR | Max loss | Commonplace dev | Sharpe Ratio | Ulcer Index | SP500 Seize Ratio | Expense ratio | Yield | |
| Water group | 8.3 | -29.6 | 20.2 | 0.29 | 12.2 | 0.81 | 0.76 | 0.9 |
| Infrastructure group | 4.0 | -24.7 | 18.8 | 0.09 | 10.1 | 0.76 | 0.83 | 2.6 |
| Utilities group | 6.2 | -21.4 | 18.5 | 0.20 | 8.8 | 0.82 | 1.16 | 3.7 |
| Invesco Water Assets | 11.8 | -24.7 | 20.3 | 0.46 | 9.8 | 0.91 | 0.59 | 0.5 |
| GlobalX US Infrastructure | 18.6 | -30.2 | 25.9 | 0.63 | 8.4 | 1.0 | 0.47 | 0.5 |
| Virtus Reeves Utilities ETF | 11.6 | -18.2 | 19.3 | 0.47 | 6.8 | 1.1 | 0.49 | 1.5 |
Collectively, water funds outperformed each infrastructure and utilities, however with considerably extra volatility (measured by the funds’ most drawdown over the interval and by their normal deviation). In risk-adjusted phrases, the image is muddled: water had the next Sharpe ratio (which is nice) but in addition the next Ulcer Index (which is unhealthy, with larger Ulcer rankings translating to deeper and longer drawdowns therefore extra ulcers). Utilities predictably threw off extra cash.
Selecting a water fund
We used the MFO Premium screener to establish all funds and ETFs older than three years with “water” of their names (then threw out those the place Water was simply a part of the advisor’s identify).
| Expense Ratio | 5-Yr Return | AUM ($M) | Key Focus Areas | US Publicity | Whole Holdings + Prime Holdings | ||
| First Belief Water ETF | FIW | 0.53% | 12.0 | 1,776 | Passively managed, tracks ISE Clear Edge Water Index, U.S. water tools & utilities, small-midcap border, development, 5 stars | 90 | 36 shares: Waters Corp, IDEX, Agilent Tech |
| Invesco Water Assets ETF | PHO | 0.60% | 11.8 | 2131 | Passively managed, monitoring NASDAQ OMX US Water index, midcap development, 5 star | 94 | 38 shares : Ecolab, Roper Applied sciences, Ferguson Ent. |
| Tortoise World Water ETF | TBLU | 0.40% | 8.0 | 55 | Actively managed, ESG focus, midcap development/core border, 4 star | 43 | 41 shares: Veolia, Geberit, Veralto |
| Invesco S&P World Water ETF | CGW | 0.57% | 7.5 | 888 | Passively managed, S&P World Water Index, world utilities & infrastructure, midcap development, 4 star | 57 | 63 shares: Xylem, American Water, Veralto |
| Calvert World Water | CFWAX | 1.24% | 6.8 | 530 | Passively managed, tracks World Water Analysis Index, ESG-aligned water stewardship, midcap core, 4 star | 48 | 112 shares: Pentair, Ecolab, Zurn Elway Water Options |
| Virtus Duff & Phelps Water | AWTAX | 1.22 | 6.4 | 578 | Pursues “water applied sciences to deal with the worldwide water disaster,” therefore ESG attuned, high quality centered, midcap development, 4 star | 64 | 51 shares: Xylem, Severn Trent, United Utilities Group |
| Invesco World Water ETF | PIO | 0.75 | 5.9 | 255 | Passively managed, tracks NASDAQ OMX World Water Index of world water-related firms, midcap development, three star, no insider funding | 54 | 38 shares: Ecolab, Roper, Pentair |
| Constancy Water Sustainability | FLOWX | 0.93% | n/a | 105 | “Sustainability” targets firms that improve efficiencies, prolong life cycles or develop new water tech, therefore ESG screened, midcap development, three star, modest insider funding | 66% | 35 shares: Pentair, United Utilities, Severn Trent PLC |
Constancy Water Sustainability doesn’t but have a five-year file however has considerably outperformed the S&P World Water index of the previous 1- and 3-year durations.
- FLOWX emerges as a top-tier actively managed fund, providing robust returns, ESG alignment, and world diversification. It will be a compelling alternative for traders prioritizing sustainability and keen to pay barely larger charges for energetic administration.
- PHO and FIW stay the leaders when it comes to uncooked efficiency and cost-efficiency, making them splendid for traders looking for low-cost, U.S.-focused publicity to the water sector. (Which WABAC already tipped us off to.)
- CFWAX and EBLU proceed to be robust ESG-focused choices, however FLOWX’s barely larger returns and comparable risk-adjusted efficiency make it a aggressive various.
- AWTAX and PIO stay stable decisions for world publicity, although they lag barely behind in efficiency in comparison with FLOWX and the U.S.-focused ETFs. It’s laborious to mission what impact Mr. Trump’s varied impulsive rulings may have on world traders.
Backside Line
When choosing water-oriented funds, you have to to contemplate components equivalent to administration fashion (energetic vs. passive), geographic focus, and ESG alignment. Actively managed funds like FLOWX would possibly supply larger returns however include larger charges, whereas passively managed ETFs like PHO and FIW present cost-effective publicity to the water sector.
In conclusion, water-related mutual funds and ETFs play an important position in infrastructure portfolios, providing resilience, development potential, and alignment with sustainability objectives. As local weather instability continues to form world markets, these investments present a compelling alternative to deal with one of the urgent challenges of our time.
