Water ETF demand set to soar over next two years, survey finds

Three ETFs in Europe currently offer exposure to water stocks

Tom Eckett

water drops on a surface

ETF issuers have predicted investor demand for water ETFs is set to skyrocket over the next two years, according to a survey conducted by Cerulli Associates.

The survey found 92% of ETF issuers expect demand for water-themed ETFs to increase in the next 12 to 24 months with the megatrend strongly resonating with investors looking to make a positive impact.

The water ETF market in Europe remains underserved with only three strategies listed across exchanges on the continent.

The largest ETFs are the $1.8bn iShares Global Water UCITS ETF (IH20) and the $988m Lyxor World Water UCITS ETF (WAT) while the $44.8m L&G Clean Water UCITS ETF (GLGG), which was named in ETF Stream’s five ETFs to watch for 2021, is the only strategy that focuses entirely on the sustainable segment of the industry.

The survey results reveal more ETF issuers are set to launch strategies in this megatrend in the future.

Water scarcity has become a major global issue with the United Nations warning more than 3 billion people are impacted by shortages around the world while 4.2 billion – 55% of the world’s population – are without safely managed water.

Fabrizio Zumbo, associate director, European asset and wealth management research at Cerulli, said: “The pace of product innovation in the ETF domain has been very fast in the last few years and new products, which go beyond the traditional high exposure of water funds to utilities, are coming to the market.

“The specialisation of the offering is providing more options to investors to get exposed to water at a low cost.”

Thematic ETFs shoot the lights out in 2020

Overall, some 84% of respondents predicted tech-themed ETFs such as cybersecurity and artificial intelligence will see an increase in demand over the next year.

Thematic ETFs exploded last year with a record €9.5bn inflows poured into these strategies over the 12 months.

“The consensus of managers operating in Europe is that broad themes relating to technology and sustainability will prevail in the aftermath of COVID-19 and longer-term,” Zumbo continued.

“Investors are becoming more comfortable with using thematic ETFs for diversification and to express their investment objectives – a reflection of how the product set is evolving.”

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