Making its debut on 06/13/2007, smart beta exchange traded fund Invesco Global Water ETF (PIO) provides investors broad exposure to the Industrials ETFs category of the market.
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader 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.
Advertisement: High Yield Savings Offers
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
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.
Managed by Invesco, PIO has amassed assets over $269.37 million, making it one of the average sized ETFs in the Industrials ETFs. PIO, before fees and expenses, seeks to match the performance of the NASDAQ OMX Global Water Index.
The NASDAQ OMX Global Water Index is designed to track the performance of companies worldwide that are creating products that conserve and purify water for homes, businesses and industries.
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for PIO are 0.75%, which makes it one of the most expensive products in the space.
The fund has a 12-month trailing dividend yield of 0.80%.
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Looking at individual holdings, Pentair Plc (PNR) accounts for about 7.68% of total assets, followed by Roper Technologies Inc (ROP) and Ecolab Inc (ECL).
Its top 10 holdings account for approximately 54.5% of PIO’s total assets under management.