Update: iShares Global Water UCITS ETF

Der ETF umfasst Versorger und Industrieunternehmen mit einem signifikanten Exposure im Wassergeschäft. Obwohl der Index „Global“ ist, bilden Industrienationen den Kern. Insbesondere die USA mit einer Gewichtung von 40% im ETF vertreten.

Kenneth Lamont 11.03.2016

Rolle im Portfolio

The iShares S&P Global Water UCITS ETF provides exposure to 50 of the largest companies globally that are involved in water-related businesses.

The reference index is divided between regulated water utility companies and diverse industrial firms that have significant revenues generated from businesses related to water (for example, Pentair, a major manufacturer of water pumps and filters). The index's weighting scheme places a greater emphasis on firms whose primary focus is water-related business rather than the magnitude of water-related revenues. Therefore, many of the water industry's largest players--such as General Electric GE and Siemens SI--are not considered for inclusion in the index because their other business activities eclipse the relative importance of their water-related revenues. On account of these exclusions, it can be argued that investing in this fund provides incomplete exposure to the overall water industry.

This exchange-traded fund, given its narrow sector focus, would be best deployed as a satellite holding to complement an already well-diversified portfolio for those whose investment thesis is grounded in the need for upgrading and expanding global water infrastructure.

Despite the word global in its name, investors should be aware that this fund is geographically biased toward developed countries and in particular the United States, which accounts for around 40% of geographic exposure.

The S&P Global Water Index has exhibited a five-year correlation to the MSCI World Index of around 78%, implying minor diversification benefits when added to core equity holdings.

Historically, the utilities sector has produced strong, stable cash flows, which have translated into higher dividends. However, as of this writing, this ETF had a dividend yield of 1.72%, marginally higher than that for the MSCI World.

Fundamentale Analyse

Despite being one of the most abundant commodities on earth, unequal geographic distribution and booming population growth mean that the long-term investment prospects surrounding the treatment and distribution of water remain compelling.

As a fundamental requirement for human life, it is perhaps unsurprising that population growth contributes to the demand for clean, fresh water. In order to support higher populations, water is needed in greater quantities for agricultural irrigation and livestock hydration as well as for human consumption. In recent years, global water consumption has been growing at twice the rate of population growth.

The United Nations projects the global population to grow 30% by 2030, by which stage the world is forecast to face a 40% global shortfall between supply and demand. Clearly, with a relatively fixed supply of fresh water, a rise in demand of this sort will impact the price of water everywhere.

Fresh water is not distributed equitably across population centers, nations, or regions. Moreover, given its weight, water is not easy to transport in sufficiently large quantities. As population grows, supply and demand for water will become progressively more imbalanced, especially in arid regions with contaminated water. For regions with easily accessible water resources like rivers and underground aquifers, the risk of overconsumption and inefficient recycling are real threats to the sustainability of these resources. These constraints pose a profit opportunity for firms in this index who have the know-how to efficiently treat and distribute water across the world.

Growth opportunities also exist for firms with a global presence and proximity to emerging-markets nations, especially with regard to sanitation. At the moment, roughly 2.6 billion people do not have access to proper sanitation. To combat this problem, emerging-markets economies have been active in delegating resources to improving and designing new infrastructure related to waste and water management. The World Bank estimates that Middle Eastern, Asian, and Mediterranean countries could spend upward of USD 1.5 trillion to upgrade their existing infrastructure. However, many national governments face long-run budgetary constraints and lack technical expertise in assuring project quality. In response to these challenges, municipal governments have turned to private industrial firms for waste removal and supply of drinking water through public-private partnerships. These partnerships--often operated under a DBFMO model in which the private partner designs, builds, finances, maintains, and operates the facility--allow cash-strapped governments to outsource the financing and associated construction risks to the private sector.

Going forward, growth will be driven by global trends toward greater desalination and water reuse, water conservation, energy efficiency, and enhanced technology. In order to accomplish these operations, massive investments in water-related infrastructure will be required as existing water systems are antiquated and inadequate. To the extent municipal governments can subsidise these infrastructure projects, firms in this index should benefit from these trends as a result of their technical expertise and global reach in these niche undertakings.

Indexkonstruktion

The S&P Global Water Index provides equity exposure to 50 companies that are involved in water-related businesses around the world. In order to provide a well-diversified exposure, the index distributes the constituents equally between water utilities and infrastructure, and water equipment and materials--two distinct clusters of water-related businesses. The index is a modified cap-weighted index, which reduces single stock concentration. Companies with water-related business as their core competency are weighted according to their market capitalisation. Multi-industry companies with significant exposure to water-related businesses are only weighted at half their market capitalisation. The index is rebalanced semiannually, and there are no intrayear index additions, and intrayear deletions will only occur if a component is delisted. At each review date, each cluster is allocated a weighting of 50%, and single issuer exposure is capped at 10%. Geographically speaking, the fund is heavily tilted toward US stocks. At the time of writing, the US accounted for a 40% weighting in the of index, followed by the United Kingdom (17%), Switzerland (9%), and France (9%). At the time of writing, the largest single equity exposure was Geberit (8%), followed by American Water Works (7%), and United Utilities (5%).

Fondskonstruktion

The fund uses full physical replication to track the S&P Global Water Total Return Index. It aims to track the performance of the reference index by owning all the constituent shares in the same weightings as those stipulated by the index. The fund also uses futures for cash management purposes. This is standard practice and helps limit tracking error. IShares engages in securities lending and can lend up to 100% of the securities within this fund to improve its performance. The gross revenue generated from this activity is split 62.5/37.5 between the fund and the lending agent BlackRock, whereby BlackRock covers the costs involved. The fund lent out 10.19% on average and a maximum of 15.50% during the 12 months to 31 Dec 2015, generating a 0.05% return. To protect the fund from a borrower's default, BlackRock takes collateral greater than the loan value. Collateral levels vary between 102.5% and 112.0% of the value of securities on loan, depending on the assets provided by the borrower as collateral. Additional counterparty risk mitigation measures include borrower default indemnification. Specifically, BlackRock commits to replace the securities that a borrower would fail to return. The indemnification agreement is subject to changes, and in some cases without notice.

Gebühren

The fund levies a total expense ratio (TER) of 0.65%. This lies in the middle of the range for ETFs tracking water-related equities. The annualised tracking difference (fund return minus index return) of negative 0.44% during the past three years suggests that the annual cost of holding the fund tends to be lower than the TER. This can be partly explained by the positive contribution of securities-lending activity (for example, the net lending return was 0.05% in 2015) and the fact that the fund enjoys a better withholding tax rate than the index. In addition to holding costs, ETF investors will typically be charged trading costs, including bid-offer spreads and brokerage commissions, when buy and sell orders are placed for ETF shares.

Alternativen

As of writing, there were two alternative ETFs providing equity exposure to water-related businesses.

The more popular one, as measured by assets under management, is the Lyxor ETF World Water ETF. Its underlying index, the SGI World Water CW Index, provides exposure to the world's 20 largest companies in the water utilities, water infrastructure, and water treatment categories, capping each constituent at 10% of the index total value. The fund uses synthetic replication and levies a TER of 0.60%.

Investors may also consider the PowerShares Global Water UCITS ETF, which physically holds all 35 stocks in the Nasdaq OMX Global Water Index and levies a TER of 0.75%.

Investors may also consider the PowerShares Global Water UCITS ETF, which tracks the Nasdaq OMX Global Water Index and levies a TER of 0.75%.

Über den Autor

Kenneth Lamont  ist Fondsanalyst bei Morningstar.