Every single day, Individuals depend on 2.2 million miles of ageing 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 plenty 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 correct selection isn’t simple. 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 almost $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 price 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 can begin with PIO and TBLU. I’m not good sufficient to think about how they may carry out within the tariff regime promised by our new president.” Since I take our board members’ insights significantly, we’re providing this addendum on water infrastructure investing for you.
Water infrastructure consists of consuming water, wastewater, and stormwater companies. There are two drivers of demand for funding in water infrastructure. First, we’ve allowed our current 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 the USA 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, absolutely funding water infrastructure wants would generate “a $4.5 trillion acquire in GDP, the creation of 800,000 new jobs, and a $2,000 annual enhance in family earnings.” Water funding automobiles 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 important 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 plenty, a gentle 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 Risk of Drying Lands, 12/2024). This isn’t discussing drought, which is short-term. It’s documenting a everlasting change within the water cycle. Within the US, the arid zone is shifting relentlessly eastward “with no sign of ending” in line with scientists from Colorado State and the College of Michigan. Aridification is threatening meals safety, whereas excessive rainfall occasions are growing in frequency and depth. These developments are usually not 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 help local weather resilience by means of improved water administration methods, 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.
Function in Local weather Resilience
Water infrastructure investments tackle three key local weather challenges:
- Adaptation: Supporting applied sciences like good water methods and desalination crops
- Danger Mitigation: Restoring floodplains and wetlands to cut back catastrophe impacts
- Sustainability: Funding utilities and firms enhancing water effectivity and recycling
These investments align with world priorities to modernize ageing methods. 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 may align along with your targets?
Selecting broad or slim
All the things above helps investing in water assets, which undeniably profit from long-term tailwinds. Nonetheless, there are two parts of a case in opposition to them.
First, traders misuse thematic funds. Jeff Ptak is the most recent in a protracted line of Morningstar analysts to evaluate the efficiency of thematic / sector funds as a bunch. 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 common greenback invested in thematic funds misplaced round 7% per 12 months. Even if you take away the biggest thematic fund―ARK Innovation ETF, which famously soared, gathered billions in property, 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 have been manifold: the funds’ efficiency sucked, they cost rather a lot and traders mistimed purchases. We, as a bunch, purchased funds in areas that the analysts (and shills) have been hyping. Ptak’s suggestion: if you wish to spend money on a sector fund, choose the realm that Wall Avenue has written off for useless. With annualized returns, for the water funds beneath, -2.5% to three.2% over the previous three years, perhaps water qualifies?
Second, broader funds may get you there with much less fuss. Water funds are likely to concentrate on smaller, high-growth firms which generally don’t pay dividends. Which means they are usually extra risky and, therefore extra prone to scare off traders than the common fairness. Different locations the place water investments lie, albeit in restricted amount, are infrastructure and utilities funds. The common infrastructure fund presents 5-15% publicity to water infrastructure investments. The common utility fund is about 3% “pure” water and 22% diversified utility firms which might probably have water infrastructure of their portfolios.
5-year snapshot, three peer teams, and three high 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 additionally the next Ulcer Index (which is dangerous, with greater Ulcer rankings translating to deeper and longer drawdowns therefore extra ulcers). Utilities predictably threw off more money.
Selecting a water fund
We used the MFO Premium screener to determine 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 title).
| 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 enhance efficiencies, lengthen 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 document however has considerably outperformed the S&P World Water index of the previous 1- and 3-year intervals.
- FLOWX emerges as a top-tier actively managed fund, providing robust returns, ESG alignment, and world diversification. It could be a compelling selection for traders prioritizing sustainability and keen to pay barely greater charges for lively administration.
- PHO and FIW stay the leaders by way of uncooked efficiency and cost-efficiency, making them ultimate 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 greater returns and comparable risk-adjusted efficiency make it a aggressive different.
- AWTAX and PIO stay strong decisions for world publicity, although they lag barely behind in efficiency in comparison with FLOWX and the U.S.-focused ETFs. It’s onerous to venture what impact Mr. Trump’s numerous impulsive rulings could have on world traders.
Backside Line
When deciding on water-oriented funds, you will have to think about components similar to administration fashion (lively vs. passive), geographic focus, and ESG alignment. Actively managed funds like FLOWX may supply greater returns however include greater 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 function in infrastructure portfolios, providing resilience, development potential, and alignment with sustainability targets. As local weather instability continues to form world markets, these investments present a compelling alternative to deal with probably the most urgent challenges of our time.
