Access to clean drinking water is one of the world’s most pressing issues, so demand for products to address inefficient use of the resource will remain strong in the long term. Invesco Water Resources ETF shares have risen strongly recently and technically look overbought, so it’s worth waiting for a correction to form long positions.
We give a “Hold” rating to shares of Invesco Water Resources ETF with a 12-month $60.3 price target, which implies an upside of 8.2% from the current price level.
Our assessment is based on the weighted average consensus target prices of the securities included in the fund.
Invesco Water Resources ETF is an exchange-traded investment fund that tracks the NASDAQ OMX US Water Index, which includes companies that manufacture products for water conservation and treatment in private homes as well as manufacturing facilities.
As of June 16, 2023 there are 36 issuers in the fund’s portfolio. The top 5 include Ecolab, Xylem, Roper Technologies, Ferguson and Danaher Corporation. The top 10 issuers account for 63.7% of the portfolio.
UNICEF estimates that 36 countries are facing extremely high water scarcity, so the demand for services and technologies for water conservation and treatment in private homes as well as industrial facilities will remain high in the long term.
In 2022, the water and wastewater treatment systems market was valued at $299.83 billion and is expected to reach $497.5 billion by 2030, implying a compound annual growth rate (CAGR) of 6.53% from 2023 to 2030.
The growth driver for Invesco Water Resources ETF stocks will be expanded investment in upgrading U.S. water infrastructure through the passage of the over $1 trillion infrastructure bill and the $369 billion Inflation Reduction Act, which includes upgrades to drinking and wastewater systems, port infrastructure, and the reclamation of contaminated and unoccupied land.
We see the key risks as rising costs amid continuing inflationary pressures in the U.S., a slowdown in equipment purchases due to turmoil in the banking sector and tighter lending conditions, and a reduction in investment in infrastructure projects.
ETF Description
The Invesco Water Resources ETF exchange-traded investment fund tracks the NASDAQ OMX US Water Index, which includes companies that manufacture water conservation and treatment products for private homes as well as manufacturing facilities. The ETF has a fairly broad focus and covers industries such as manufacturing, electronics, water utilities, purification equipment, chemicals, health care, etc.
Invesco Water Resources ETF was created on June 12, 2005, with Invesco Powershares Capital Management acting as the management company. The management fee is 0.50%. The ETF’s portfolio features equities of 36 issuers and was valued at $1.82 billion on June 16, 2023. The top 5 include Ecolab, Xylem, Roper Technologies, Ferguson and Danaher Corporation. The top 10 issuers account for 63.7% of the portfolio. In terms of geographical allocation, 98% of the fund is invested in U.S. stocks and 2% of the assets are placed in Brazilian and Canadian companies.
Growth Factors
– Access to clean drinking water is one of the most pressing problems in the world, as water resources are threatened in many regions by climate change and pollution. UNICEF estimates that 36 countries are already facing extremely high water scarcity, so the demand for services and technologies to preserve and treat water in private homes as well as in industrial facilities will remain high in the long term.
– However, the COVID-19 pandemic has had a detrimental impact on the global water and wastewater treatment market, as lockdowns and shutdowns have disrupted supply chains and forced businesses to scale back operations, resulting in slower business growth and less investment in the industry.
– Considering the vital need of the world for clean water and the pandemic deferred demand factor for various treatment systems for the disposal and reuse of contaminated water, the water and wastewater treatment systems market is set to grow in the near future. In 2022, the market was valued at $299.83 billion and is expected to reach $497.5 billion by 2030, implying a compound annual growth rate (CAGR) of 6.53% over the period 2023-2030.
– The Invesco Water Resources ETF will be a growth driver for stocks of companies included in the Invesco Water Resources ETF, with expanded investment in upgrading U.S. water infrastructure through the passage of the over $1 trillion infrastructure bill and the $369 billion Inflation Reduction Act, which includes upgrades to drinking and wastewater systems, port infrastructure, and the remediation of contaminated and unoccupied land.
Evaluation
We evaluated the growth potential of the Invesco Water Resources ETF based on the weighted average consensus target prices of the securities comprising the fund. The fund’s annual upside based on this valuation methodology is 8.2%, which implies a target price of $60.3. Based on this, we give Invesco Water Resources ETF a “Hold” rating.
Stocks in the stock market
Over the past 12 months, the instrument has shown above-market returns – the fund is up nearly 15%, while the S&P 500 Index has advanced just over 10%. We believe that the Invesco Water Resources ETF will be able to maintain better-than-market momentum going forward, with fundamental reasons for growth.
THE 12-MONTH PERFORMANCE OF THE INVESCO WATER RESOURCES ETF AND THE S&P 500 INDEX.
Of the top 5 issuers in the ETF portfolio the highest return over the last 12 months were Xylem shares (+39.5%), followed by Ferguson (+28.4%), Ecolab (+13.2%) and Roper Technologies (+8.8%). Danaher Corporation shares showed negative dynamics, having decreased by 3.8%.
THE DYNAMICS OF RETURNS OF ECOLAB, XYLEM, ROPER TECHNOLOGIES, FERGUSON AND DANAHER SHARES FOR 12 MONTHS.
Technical analysis
From the technical point of view, on the daily chart the ETF, demonstrating an upward dynamic, updated the local maximum and approached the next resistance level at $57, so a corrective drawdown to the support at $50-52 is not excluded in the mid-term before the price resumes its strengthening.
* Prices and other market data are given at the time of preparation of the material issued on 16.06.2023.
**The message is for information purposes only and does not constitute an individual investment recommendation or offer to purchase the securities mentioned. Acquisition of foreign securities is associated with additional risks
