A smart beta exchange traded fund, the Invesco Water Resources ETF (PHO) debuted on 12/06/2005, and offers broad exposure to the Industrials ETFs category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
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.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
The fund is managed by Invesco, and has been able to amass over $2.10 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
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Annual operating expenses for this ETF are 0.59%, making it on par with most peer products in the space.
PHO's 12-month trailing dividend yield is 0.51%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
PHO's heaviest allocation is in the Industrials sector, which is about 55.80% of the portfolio. Its Information Technology and Utilities round out the top three.
Looking at individual holdings, Ecolab Inc (ECL) accounts for about 9.32% of total assets, followed by Roper Technologies Inc (ROP) and Xylem Inc/ny (XYL).
The top 10 holdings account for about 59.41% of total assets under management.
Performance and Risk
The ETF has lost about -0.63% so far this year and is down about -1.18% in the last one year (as of 03/28/2025). In the past 52-week period, it has traded between $63.04 and $72.14.
The ETF has a beta of 1 and standard deviation of 18.69% for the trailing three-year period, making it a medium risk choice in the space. With about 40 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 $894.56 million in assets, First Trust Water ETF has $1.74 billion. CGW has an expense ratio of 0.56% 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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Invesco Water Resources ETF (PHO): ETF Research Reports Ecolab Inc. (ECL): Free Stock Analysis Report Roper Technologies, Inc. (ROP): Free Stock Analysis Report Invesco S&P Global Water Index ETF (CGW): ETF Research Reports First Trust Water ETF (FIW): ETF Research Reports Xylem Inc. (XYL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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