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Is Invesco Water Resources ETF (PHO) a Strong ETF Right Now?

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Designed to provide broad exposure to the Industrials ETFs category of the market, the Invesco Water Resources ETF (PHO - Free Report) is a smart beta exchange traded fund launched on 12/06/2005.

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.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

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.

Fund Sponsor & Index

PHO is managed by Invesco, and this fund has amassed over $1.91 billion, which makes it one of the larger ETFs in the Industrials ETFs. PHO seeks to match the performance of the NASDAQ OMX US Water Index before fees and expenses.

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

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.59%.

The fund has a 12-month trailing dividend yield of 0.64%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

PHO's heaviest allocation is in the Industrials sector, which is about 54.10% of the portfolio. Its Utilities and Healthcare round out the top three.

When you look at individual holdings, Danaher Corp (DHR - Free Report) accounts for about 8.25% of the fund's total assets, followed by Ecolab Inc (ECL - Free Report) and Roper Technologies Inc (ROP - Free Report) .

PHO's top 10 holdings account for about 61.18% of its total assets under management.

Performance and Risk

Year-to-date, the Invesco Water Resources ETF has gained about 11.57% so far, and was up about 15.01% over the last 12 months (as of 08/31/2023). PHO has traded between $45.70 and $58.32 in this past 52-week period.

The fund has a beta of 0.96 and standard deviation of 19.61% for the trailing three-year period, which makes PHO a medium risk choice in this particular space. With about 39 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco Water Resources ETF is an excellent option for investors seeking to outperform the Industrials ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

Invesco S&P Global Water Index ETF (CGW - Free Report) tracks S&P GLOBAL WATER INDEX and the First Trust Water ETF (FIW - Free Report) tracks ISE Clean Edge Water Index. Invesco S&P Global Water Index ETF has $958.17 million in assets, First Trust Water ETF has $1.45 billion. CGW has an expense ratio of 0.57% 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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