Get the Latest on Water-Focused Funds and the Global X Clean Water ETF
Ric Edelman: Let's go to the phones here on The Truth About Your Future. Heading off to Clifton, Virginia. Harvey is with us on the air. How are you doing, Harvey?
Harvey from Clifton, VA: Doing really well, Ric. And you?
Ric: Oh, doing well. Thank you very much. What can I do to help you?
Harvey from Clifton, VA: Well, I've been listening to the show for quite a while, and I'm listening in with your new advice. And I'm really interested in the variety of opportunities you discuss, especially the Global X ETFs and their focus on some small areas that might have critical importance going forward. And I'm particularly interested in their water fund. I've noticed from my experience that Israel is one of the critical, critical countries in development of technology for water. And I noticed that on the Global X site, the participation of Israel and the fund is zero. And then I noticed the conscious approach disclaimer in the fund's page. It leads me to believe that maybe they choose not to participate in securities from Israel.
Ric: Yeah. No, it's not nearly as nefarious as that. The Global X ETF that is investing in clean water is the AQWA ticker symbol. And I'm a fan of the fund as well. But let's understand how it works. Pretty much all ETFs are passively managed, meaning they are index funds. So instead of a fund manager deciding what stocks to buy, the ETF tracks an index. And in this particular case, the Global X ETF tracks the selective global clean water industry index. That index is what you need to look at. In other words, how is that index constructed? What are its rules? How does it decide what stocks qualify or don't qualify? And when you look at the rules, I went and checked - when you looked at the rules, the index does not specifically exclude Israeli holdings and Global X, of course, does not exclude Israel or any country because of any particular political risk. That's not a concern. The Global X Clean Water ETF excludes companies in Israel simply because they don't meet the requirements for inclusion in the index. For example, all the stocks in the fund must comply with the rules that are set by the United Nations. The U.N. is very concerned about human rights, labor practices, the environment, anti-corruption, stuff like that. There are 22 companies in Israel that comply with these rules, so you'd figure, okay, they should be in the fund. The only problem is only two of those 22 are in the clean water space and both of them are privately held companies. They're not publicly traded stocks. And so, the ETF can't buy them. And it's kind of an unfortunate limitation of ETFs because ETFs are only able to buy publicly traded stocks. They can't buy private companies. This is why private equity is a big conversation, which is a different topic, because they invest in privately held companies, ETFs, and mutual funds, invest in public companies. So, you're right, Israel has a couple of really awesome water companies, but they're both privately held and therefore they don't qualify for inclusion in the index.
Harvey from Clifton, VA: Got it.
Ric: So, you're right to keep looking at this and it's important that we understand index construction so that we know that this is actually operating in a way that we would want it to. And my conclusion is, yes, the Global X Water ETF, AQWA is a really good way to get exposure in this space. If you agree, like I do, that climate change is creating a clean water problem. You know, we are having drought in many countries around the world. Even in U.S. our own Southwest is having a huge water drought problem. Many countries around the world are. There are a billion people in the world who don't have access to clean water. So this is a huge growth industry and the Global X AQWA ETF, (that's the symbol, AQWA) is a really great way to get exposure to that technology and the companies that are in it.
ASK RIC Live: Harvey from Clifton, VA: Got it. Thank you. Keep up the good work.
Ric Edelman: Harvey, thank you for calling. I really appreciate your question. You can do what Harvey did. Just send me an email to AskRic@TheTruthAYF.com. You're listening to The Truth About Your Future.