Tortoise Index Solutions has launched the Tortoise Water Fund (Bats: TBLU), an ETF investing in North American companies that are substantially engaged in the water infrastructure and water management industries.
The Tortoise Water Fund (Bats: TBLU) seeks to provide a more comprehensive exposure to the water utilities industry by including firms with between 25-50% revenue exposure to the water industry, as well as those with a majority revenue exposure.
The principal business of water infrastructure companies is providing public water distribution or supporting water distribution infrastructure via equipment or engineering and construction, while water management companies provide technologies or products that manage or facilitate water distribution and usage, including the fields of water efficiency, water treatment and irrigation.
“Water is critical for economic growth and social stability,” said Jeremy Goff, Director at Tortoise. “We believe that there is a tremendous need in the market for a quality index that accurately represents the water industry. Creating this product is a natural extension of our strategy to provide essential asset solutions in wrappers that are desired by advisors and investors.”
The fund tracks the Tortoise Water Index, a reference for the performance of North American firms listed on the New York, NASDAQ or Toronto stock exchanges with ‘direct’ or ‘indirect’ exposure to the water industry. ‘Direct’ exposure firms are defined as those deriving at least 50% of their gross revenues from water related activities, and this segment will constitute at least 70% of the final index constitution, as of each rebalance date.
‘Indirect’ water exposure companies are defined as water companies that derive significant (above 25%), but less than a majority of, gross revenues from water related activities. Companies classified as having ‘indirect’ water exposure will be weighted to represent at most 30% of the index.
Within each ‘direct’ or ‘indirect’ exposure segment, constituents are weighted by float-adjusted market cap with a single issuer cap of 7.5% for ‘direct’ exposure firms and a 4% cap for ‘indirect’ exposure firms.
The index is rebalanced on a quarterly schedule.
“We believe that our fund offers the purest exposure to the water industry by tracking an index that incorporates fundamental weighting factors that recognize and adjust for the fragmented nature of the water space,” said Matthew Weglarz, portfolio manager for the fund. “The urgent need for investment in this essential asset, and the infrastructure that supports it, is becoming increasingly recognized and our fund provides a more direct way for investors to access the opportunity.”
As of the last rebalancing date (16 December 2016), the index has 34 constituents with a mean market capitalization of $3.9bn. Water infrastructure firms make up 69% of the total constitution with water management companies making up the other 31%. The largest constituents include Aqua America (7.7%), American Water Works (7.6%) and Xylem (7.3%).
The ETF has a total expense ratio (TER) of 0.40%.
The Tortoise Water Fund is the second ETF offering from Tortoise Index Solutions. Its first offering, the Tortoise North American Pipeline Fund (NYSE: TPYP), provides access to the sizable pipeline network of one of the world’s largest consumers of energy. The ETF tracks the Tortoise North American Pipeline Index, a float-adjusted, capitalization weighted index of pipeline companies headquartered in the United States and Canada. It also has a TER of 0.40%.