Why Water Companies Like Veolia Environnement and Pentair Enjoy Lasting Demand

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some water-related companies to your portfolio but don't have the time or expertise to hand-pick a few, thePowerShares Global WaterETF could save you a lot of trouble. Instead of trying to figure outwhich stocks will perform best, you can use this ETF to invest in lots of water-related companies simultaneously.

On your own you might not have selectedPentair, Ltd.orVeolia Environnement SAas water-related companies for your portfolio, but this ETF included them among its 30-some holdings. The ETF has lagged the world market over the past five years, but topped it over the past year. Our planet will only need more and cleaner water as time goes on, so water-related companies should enjoy long-term demand. (Indeed, some expect demand toexceed supplyby 40% by 2030.)

To appreciate the potential demand more, consider that, accordingto the World Health Organization (WHO), "About 2.6 billion people -- half the developing world -- lack even a simple 'improved' latrine and 1.1 billion people has no access to any type of improved drinking source of water." The WHO, world governments, and others are aiming to change this sorry state of affairs, which is likely to require more products and services from water-related companies. Keep in mind that agriculture also requires a lot of water.

The ETF's Basics
ETFs often sport lower expense ratios than their mutual fund cousins. ThePowerShares Global WaterETF, focused on water-related companies, sports an expense ratio -- an annual fee -- of 0.82%. That's a bit on the steep side for an ETF, but it's still well below the typical stock mutual fund. You don't have too many choices, either, if you're looking for an ETF focused on water-related companies. There are three main alternatives: thePowerShares Water Resources Portfolio ETF(PHO), theFirst Trust ISE Water Index Fund ETF(FIW), and theGuggenheim S&P Global Water Index ETF(CGW). This ETF's expense ratio is higher than the others', but it also sports a significantly higher dividend yield than them, too, recently yielding 1.5%.

This ETF is fairly small, so if you're thinking of buying, beware of possiblylarge spreadsbetween its bid and ask prices. Consider using a limit order if you want to buy in.

A closer look at Pentair, Ltd.
Pentair serves the water industry with valves, controls, pumps, filtration equipment, and a host of other products and services. Its stock yields 1.3%, and its payout has increased by nearly 40% over the past five years. The company boughtTyco'sflow control operations in 2012.

Pentair's latest quarterly results featured revenue down almost 3% over year-ago levels. That was below expectations, which, coupled with weak near-term revenue projections from management, helped send shares down roughly 7%. Adjusted earnings, though, were up 26%, with management expecting moredouble-digit growth. Pentair is in the middle of buying back more than $2 billion worth of shares.

In a conference call, management noted:

Overall, while we are not satisfied with our top line performance in the first quarter, we continue to deliver on productivity and synergies and see strengthening of the top line as we enter the seasonally strong period for our residential and commercial businesses. Our backlog gives us further confidence in our expectation for an accelerating top line growth rate in the second half of the year as well.

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• Food & Beverage