Water ETFs in Australia 2025: Investing in the World’s Most Vital Resource

Water is the world’s most precious commodity—and in 2025, investors are waking up to the reality that it’s also investable. Water exchange-traded funds (ETFs) are gaining momentum in Australia, as concerns over drought, climate change, and global supply chains drive interest in essential-resource assets. But what exactly are water ETFs, and how do they fit into a smart investment strategy?

What Are Water ETFs, and Why Are They Surging in 2025?

Water ETFs are funds traded on the stock exchange that invest in companies involved in the water industry—think utilities, infrastructure, purification, technology, and even bottling. Unlike traditional commodity ETFs (like those tracking gold or oil), water ETFs typically hold shares in businesses that manage, treat, or distribute water, rather than the raw commodity itself.

• Climate-driven demand: The 2024–2025 El Niño cycle has highlighted Australia’s vulnerability to drought, pushing water scarcity up the investment agenda.

• Policy spotlight: The Australian government’s expanded National Water Grid Fund and increased funding for water infrastructure in the 2025 Federal Budget have further underlined water’s strategic significance.

• International flows: With global institutions like the World Bank predicting water demand to outstrip supply by 40% by 2030, investors are seeking exposure to companies poised to benefit from water innovation and scarcity.

Popular water ETFs accessible to Australian investors include the iShares Global Water ETF (IH20) on the ASX, and global funds like Invesco Water Resources ETF (PHO) via international trading platforms.

What’s Inside a Water ETF Portfolio?

Unlike narrow sector ETFs, water ETFs offer a surprisingly diverse mix of holdings. Here’s what you’ll typically find in the portfolio:

• Water utilities: Companies that deliver water to homes and industries (e.g., Veolia, American Water Works).

• Infrastructure and technology: Firms providing pipes, pumps, meters, and smart monitoring solutions (e.g., Xylem Inc, Pentair).

• Filtration and treatment: Companies specialising in water purification, desalination, and wastewater treatment (e.g., Danaher, Suez).

• Geographical spread: Most water ETFs are globally diversified, with heavy US and European exposure, but some emerging market holdings as well.

This blend means that water ETFs can act as a defensive play—many water utilities are considered “recession-resistant”—but also offer growth potential as water technology evolves and urbanisation accelerates.

Risks, Rewards, and Real-World Examples

Like any investment, water ETFs carry risks. They tend to have higher management fees than broad-market ETFs, and their returns are tied to regulatory changes, weather cycles, and infrastructure spending. Recent performance (as of Q1 2025):

• iShares Global Water ETF (IH20): Up 11.3% over the past 12 months, outperforming the ASX 200 (8.1%) but trailing tech-heavy ETFs.

• Market volatility: Water ETFs held steady during the 2024 global selloff, but saw short-term dips after news of government price caps in Europe.

Real-world use cases:

• Australian SMSFs: Self-managed super funds have started including water ETFs for defensive diversification, balancing out higher-risk assets like emerging markets and tech.

• Ethical portfolios: Investors seeking ESG (environmental, social, governance) exposure are turning to water ETFs for their positive impact on sustainability and climate resilience.

How to Add a Water ETF to Your Portfolio in 2025

If you’re considering a water ETF, here are some smart steps to take:

• Research the fund’s holdings and fees: Not all water ETFs are created equal. Check the top 10 holdings, management fee, and geographic focus.

• Consider your risk profile: Water ETFs are less volatile than single stocks but may lag in bull markets. They work best as part of a diversified portfolio.

• Stay informed on policy: Water pricing, regulation, and infrastructure funding can have outsized impacts on returns. The 2025 Federal Budget’s water commitments are a positive sign for the sector.

• Use Australian platforms: Water ETFs like IH20 are available on the ASX, while global options can be accessed via brokers with international reach.

The Bottom Line

Water ETFs aren’t just a bet on climate resilience—they’re a smart way to tap into a resource the world can’t live without. As Australia faces another challenging year for water security, investors with an eye on the future are finding that water ETFs can help insulate portfolios from volatility while supporting sustainable growth. Whether you’re looking for defensive diversification or ESG impact, this is one trend worth watching as 2025 unfolds.

Understanding the Regulatory Landscape

When investing in water ETFs in Australia, it’s crucial to be aware of the regulatory environment that governs these financial products. Regulatory bodies such as the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) play significant roles in ensuring market integrity and protecting investors.

ASIC’s Role

ASIC is the primary regulator for financial markets in Australia. It oversees the conduct of financial services and enforces laws to protect consumers. For water ETFs, ASIC ensures that fund managers provide transparent and accurate information, allowing investors to make informed decisions. Investors should regularly check ASIC’s website for updates on regulations affecting ETFs and related investment products.

APRA’s Oversight

While APRA primarily focuses on banks, insurance companies, and superannuation funds, its regulations indirectly impact ETFs by ensuring the stability of the financial system. APRA’s policies can influence the broader economic environment, affecting the performance of ETFs, including those focused on water resources.

Practical Examples of Water ETF Investments

To better understand how water ETFs can fit into an investment strategy, let’s explore some practical scenarios.

Case Study: Diversifying a Self-Managed Super Fund (SMSF)

Consider an Australian SMSF with a balanced investment strategy. The trustees decide to allocate 10% of the fund to water ETFs to enhance diversification and hedge against climate-related risks. By investing in the iShares Global Water ETF (IH20), the SMSF gains exposure to a mix of global water utilities and technology companies, providing both defensive and growth potential.

Ethical Investment Portfolio

An investor with a focus on ethical and sustainable investing might choose to include water ETFs as part of their portfolio. By selecting funds that prioritize companies with strong ESG credentials, such as those involved in water purification and sustainable infrastructure, the investor aligns their financial goals with their values.

Navigating Tax Implications

Investors should also consider the tax implications of investing in water ETFs. The Australian Taxation Office (ATO) provides guidelines on how ETFs are taxed, including capital gains tax (CGT) and income tax on distributions.

Capital Gains Tax

When selling ETF units, investors may incur a capital gain or loss. The ATO requires investors to report these gains, and they may be eligible for a CGT discount if the units were held for more than 12 months.

Income Tax on Distributions

Distributions from water ETFs, such as dividends or interest, are typically subject to income tax. Investors should keep detailed records of distributions received and consult with a tax advisor to ensure compliance with ATO regulations.

FAQ

What are the benefits of investing in water ETFs?

Water ETFs offer diversification, exposure to a critical global resource, and potential for growth as water scarcity becomes a more pressing issue. They also provide a way to invest in sustainable and ethical companies.

Are water ETFs suitable for all investors?

While water ETFs can be a valuable addition to many portfolios, they may not be suitable for all investors. Those with a higher risk tolerance or a preference for short-term gains might find other investment vehicles more appropriate.

How can I stay informed about changes in the water ETF market?

Investors can stay informed by following updates from regulatory bodies like ASIC, subscribing to financial news outlets, and regularly reviewing fund performance reports from their chosen ETF providers.

Sources

• Australian Securities and Investments Commission (ASIC)
• Australian Prudential Regulation Authority (APRA)
• Australian Taxation Office (ATO)
• iShares Global Water ETF (IH20) on the ASX
• National Water Grid Fund

By considering these factors and leveraging the guidance of regulatory bodies, investors can make informed decisions about incorporating water ETFs into their portfolios, ensuring alignment with both financial goals and ethical considerations.

Worked Example

For example: compare two products with the same monthly cost but different fees. A slightly higher headline rate can still be cheaper once annual fees and penalties are included.

FAQ

How often should I review this type of product?

At least once per year and again when your circumstances change.

What should I compare first?

Start with eligibility, total costs, key exclusions, and cancellation terms.

Where can I verify guidance?

Check official Australian regulators and government websites before making decisions.

Sources

• Australian Taxation Office (ATO)
• ASIC Moneysmart
• APRA

Further Authority Links

• Australian Taxation Office (ATO)
• ASIC Moneysmart

Australian Regulatory Checks

Use ATO, ASIC, APRA, RBA, and ACCC publications to verify obligations, risk warnings, and current policy settings.