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Water is arguably the most important natural resource on the planet and, considering the growing fears about its availability as the world's population grows and climate change makes it scarcer, it is unsurprising that investors are starting to pay attention.

Water may not be a tradeable commodity like oil or gold, but it is vital and in limited supply. Over 70% of the Earth is covered in water but less than 1% of it can be consumed as drinking water, and fears about droughts and water shortages are increasing. The world desperately needs to improve the way it manages its water supplies. This has placed huge responsibility on those that operate national water networks and those that help them by inventing new technology and equipment.

We have a look at the industry and outline the top water stocks from around the world.

What you need to know about the water industry
Water is crucial to every country in the world, but each one manages their resources differently. Historically, water has been owned and managed by the state to ensure citizens have access at the right price. However, many countries have gradually turned to the private sector after realising public ownership was not delivering the funding for the innovation needed to tackle the growing challenges of the market. Privatisation may have put a vital commodity into the hands of profiteering business, but it has also provided greater investment and a faster pace of development.

Some nations have embraced privatisation more than others. For example, England's entire market is privatised while governments in countries like France, Spain and India still manage some of their own water supplies. Some prefer to let private companies manage the whole network while others prefer private-public partnerships. Understanding the regulatory environment of each country is just as important as understanding the investment case for each stock.

fact, the United Nations authored a report in 2015 suggesting that the world may only have 60% of its required water by 2030, absent major global policy changes. The bottom line is that water is a precious and increasingly scarce commodity, so now might be the right time to consider adding it to your portfolio for long-term growth.

More investment advisors are recommending commodities as a dedicated asset class to hedge other assets in your overall portfolio. If you're looking at diversifying your commodities holdings to include exposure to water, you could look at individual water utility stocks if you have the time and inclination—or you could check out the emerging class of water exchange-traded funds (ETFs) to hedge your bets.

Here are three of the more prominent water ETFs for investors to consider. While had solid returns in 2019, these ETFs have also delivered stronger returns over the last five years and stand to benefit when the sector picks up. All figures are as of Jan. 14, 2020.

1. Invesco Water Resources ETF (PHO)
This is the largest and arguably the most popular water ETF, with over $1.12 billion in assets under management (AUM). Unlike other water funds, PHO is U.S.-centric, with a basket of 36 holdings that tilts toward mid- and smaller-cap companies, heavy on machinery and utilities and light on industrials.

PHO's top 10 holdings comprise almost 60% of the portfolio; Danaher Corp., Waters Corporation, and Roper Technologies are the three biggest holdings. Shares are up 10% in the last six months. The stock has posted gains over the 1-year, 3-year, and 5-year periods, rising 33%, 17%, and 10%, respectively. 

2. Invesco Global Water ETF (PIO)
The PIO portfolio, with over $200 million in assets under management, tracks the Nasdaq OMX Global Water Index and focuses on global companies that create products for water conservation and purification. As you might expect, the portfolio is heavily tilted toward industrials and utilities, with a strong preference for large-cap growth and value.

The portfolio is pretty concentrated as well, with the top 10 holdings accounting for almost 55% of its assets. There are 43 holdings. Top names include Danaher Corporation, Geberit, and Ecolab Inc.

While PHO is preferred by many investors, PIO is a good play for investors with confidence in the fund's top holdings. Shares are up 11% in the last six months. Longer-term the results are better. The fund has delivered one-, three- and five-year annualized returns of 30%, 15%, and 8%, respectively. 

3. Invesco S&P Global Water ETF (CGW)
As the name suggests, this fund tracks the S&P Global Water Index and invests in companies of all market caps that stand to benefit from the increased demand for water, including water quality and delivery infrastructure.

Although CGW has global exposure, it is heavily weighted to the U.S. (roughly 48% of its holdings) and the U.K. (roughly 13%). There are currently 51 companies in the fund's basket, with the top 10 holdings accounting for over 52% of its overall holdings; American Water Works, Xylem, and Geberit are the three biggest holdings.

The company has nearly $721 million in assets under management. So far in 2019, shares are little changed, down 0.90%. The fund has delivered one-, three- and five-year annualized returns of 30%, 15%, and 10%, respectively.

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