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:

1. Research the fund’s holdings and fees: Not all water ETFs are created equal. Check the top 10 holdings, management fee, and geographic focus.
2. 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.
3. 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.
4. 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.