Editor’s Note: This article is part of InvestorPlace.com’s Best ETFs for 2019 contest. James Brumley’s pick is the Invesco Water Resources ETF (NASDAQ:PHO).
We’re into the home stretch of 2019’s best ETFs contest, and my pick of the Powershares Water Resource Portfolio (NASDAQ:PHO) is faring pretty well. That is, up 28% year-to-date, PHO is in third place and in the hunt to move up a place … maybe even two places to take the lead. It’s a sprint from here.
As I’ve said all along though, Invesco’s water resources fund isn’t built to be a sprinter. It’s a marathon position. It can certainly dish out some rapid-fire gains at times, as it did early this year. Its real winning attribute, however, is its consistent march forward. That’s why I picked it for 2018’s best ETFs contest, and may well pick it again in 2020.
But, first things first.
It’s not the sexiest of all the exchange-traded funds out there. It’s certainly not as sexy as Robert Waldo’s pick — the Pacer Benchmark Data & Infrastructure Real Estate ETF (NYSEARCA:SRVR), which is up an incredible 39% year-to-date. And, although trailing PHO with its 19% advance since the end of 2018, Tom Taulli’s Global X Robotics & Artificial Intelligence Thematic ETF (NASDAQ:BOTZ) is the stuff of more riveting headlines. However, the Powershares Water Resource Portfolio has got some surprising horsepower under its hood.
That’s because the need for what the fund’s underlying companies do is very real.
The short version of a long story: The world’s running out of easily accessible potable water, and we don’t help ourselves because we waste much of the supply we have.
The statistics are almost embarrassing … numbers like the fact that more efficient appliances could lower the average U.S. family’s water consumption by 20%, or a savings of 13,000 gallons per year. Even before clean water reaches our faucet or dishwasher though, 180 gallons of water are lost due to leaky pipes.
And it’s not just individuals and homes. Schools, companies and other institutions are just as wasteful, and even the water utility companies themselves are making waste-victims of themselves. Thanks to water delivery systems that are now operating well past their intended lifespans, the nation has to address an average of 850 water main breaks every day. Total annual repair costs? A whopping $3 billion.
The stocks found within the Invesco Powershares Water Resource fund represent companies trying desperately to address our water woes. And, some of them have been very well rewarded by the market for their work.
Breaking Down PHO Holdings, Performance
Investors who stepped into PHO on my advice can mostly thank Danaher (NYSE:DHR) for this year’s above-average performance. DHR, which is an oversized holding in the fund, is up a hefty 39%, and up for all the right reasons. Not only has it been restructuring itself and its books, it’s continued to innovate the whole time.
For example(s), it spun off its Envista Holdings (NYSE:NVST), which wasn’t quite a great fit anymore, and earlier this week it announced it was redeeming half a billion dollars’ worth of notes a year ahead of schedule.
Not far behind DHR stock is American Water Works Company (NYSE:AWK) with its 38% year-to-date romp. Some of that performance can be chalked up to a “flight to safety” in an uncertain environment like the one we’re in now. But, that’s the crux of our strategy.
At the other end of the spectrum, HD Supply Holdings (NASDAQ:HDS) has been dead weight all year long, but particularly over the course of the past couple of months. It’s still up a little more than 5% since the end of last year, but growth has been tepid. The company announced earlier this week it would be breaking itself into two distinct entities, but that looks more defensive than offensive.
Click to Enlarge Also weighing PHO down more than most other constituents is A. O. Smith (NYSE:AOS), up a modest 12% for the year. It’s a legitimate victim of the tariff war being fought between China and the Unites States right now, but most of this year’s weakness can be attributed to sharp, public criticism from J Capital Research, which concedes it has a short position in AOS stock.
Still, all in all I’m pretty happy with how most of these holdings have fared.
Looking Ahead for the Powershares Water ETF
I’m still confident in PHO despite my lack of confidence in the overall market for the rest of the year. In fact, I’m confident in PHO specifically because of the likelihood of broad weakness ahead.
Utility and basis industrial supplies are viewed as safe havens, and should the economy hit a true headwind, I can see that prompting President Donald Trump to ease off on some of the heavy-handed tariffs now in place. They’ve been tough on many companies, but they’ve been particularly tough on some of the names in the Powershares Water Resource Portfolio like A. O. Smith.
Mostly though, I still like it because we’ve still only scratched the surface of solving the problem of an ever-shrinking supply of water.