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.
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.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
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.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
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.
The fund is managed by Invesco. PHO has been able to amass assets over $2.26 billion, making it one of the larger ETFs in the Industrials ETFs. This particular fund, before fees and expenses, 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.
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 0.54%.
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.
This ETF has heaviest allocation in the Industrials sector - about 63.8% of the portfolio. Utilities and Information Technology round out the top three.
When you look at individual holdings, Ferguson Enterprises Inc (FERG) accounts for about 9.58% of the fund's total assets, followed by Xylem Inc/ny (XYL) and Ecolab Inc (ECL).
The top 10 holdings account for about 60.39% of total assets under management.
So far this year, PHO has added roughly 10.9%, and is up roughly 4.36% in the last one year (as of 10/03/2025). During this past 52-week period, the fund has traded between $58.13 and $73.99.
PHO has a beta of 1.02 and standard deviation of 17.68% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 37 holdings, it has more concentrated exposure than peers .
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 $1.01 billion in assets, First Trust Water ETF has $1.95 billion. CGW has an expense ratio of 0.56% 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
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This article originally published on Zacks Investment Research (zacks.com).
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