Key Morningstar Metrics for iShares Global Water UCITS ETF IH2O
- : SilverMorningstar Medalist Rating
- : Above AverageProcess Pillar
- : Above AveragePeople Pillar
- : Above AverageParent Pillar
IShares Global Water ETF has proved itself to be one of the best options for investors seeking global water exposure. The large fee differential between this exchange-traded fund and the average active peer translates into a reliable advantage over longer time horizons.
The fund tracks the S&P Global Water Index, which has been tweaked twice in recent years. In 2022, the strategy introduced new constraints and light environmental, social, and governance-based exclusions, which excluded 10% of the index weight. These rules reduce single-stock risk by adding additional exposure caps; liquidity caps also help offset the impact of halving the developed-market liquidity requirements. The changes also included moving to a more granular revenue attribution. These charges were followed by the inclusion of emerging-market exposure in 2023 and a doubling in the target number of holdings.
We welcome these changes as they provide a more geographically inclusive portfolio that better captures the global thematic water opportunity set and better positions the portfolio for future growth in the water theme.
The strategy now targets double the previous 50 holdings, although at the time of writing, it held around 67 (the current number of eligible securities). The fund remains the broadest and most representative index-tracking fund in the sector equity water Morningstar Category.
The fund has performed strongly, appearing in the top half when ranked against surviving category peers (mostly actively managed) on a risk-adjusted basis over three, five, and 10 years.
This fund’s expense ratio of 0.65% is substantially lower than its peers’ and similar to the only other passive option providing similar exposure. The fund’s tracking difference (fund return minus index return) is routinely less than its ongoing charge.
This can be explained primarily by the differences in withholding tax levied on the fund and that assumed in the index methodology. Despite the word “global” in its name, investors should be aware that this fund remains geographically biased toward the US, which accounts for nearly 60% of geographic exposure, at the time of writing.
IShares has a seasoned passive-management team befitting the dominant ETF provider in Europe. The team can leverage market-leading technology while managing its funds. In sum, the fund offers low-cost, representative market exposure to a sector in which active managers have struggled to distinguish themselves.
iShares Global Water ETF: Performance Highlights
The fund has appeared in the top half when ranked against surviving peers on a risk-adjusted basis over three, five, and 10 years. This relative outperformance has been driven by a low-fee structure versus peers and a geographic tilt toward the UK and an overweighting in utilities versus its average category peer. The annual tracking difference (fund return less index return) has been lower than the fund’s ongoing charge since inception.
