How To Prospectus Hunt For Stocks

Some investors are clueless when it comes to investing in stocks per industry. There is a way to take out a lot of the hassle of opening financial reports and studying the growth patters of companies – have someone else do it for you! You can hire a portfolio manager or you can buy ETFs which manage a portfolio in your desired sector for you. Another, cheaper, alternative is to simply Prospectus Hunt.

I will be using PHO as my example today – PHO is a water industries based ETF which according to their description:

PowerShares Water Resources Portfolio (the Fund) seeks investment results that generally correspond to the price yield of the NASDAQ OMX US Water Index (the Underlying Index). The Fund generally will invest at least 90% of its total assets in common stocks that comprise the Underlying Index. The Underlying Index seeks to track the performance of the United States exchange-listed companies that create products designed to conserve and purify water for homes, businesses and industries. The Fund invests in the sector such, such as industrials, utilities, healthcare, information technology and materials. Its investment advisor is Invesco PowerShares Capital Management LLC. [1]

Creating products that are designed to conserve and purify water sounds like a pretty noble and lucrative business. I want to take part. The easiest thing to do is obviously to invest in PHO, however if you read their prospectus closely you will notice an “expense ratio” of 0.61%. This is actually a bit higher than the industry average expense ratio of 0.44% for ETFs, and a bit lower than the standard 0.74% expense ratio for index funds. For those who don’t know what expense ratio is:

Expense ratio is the percent amount of your holding that will go towards the fund manager every year. For example if you have $1,000 in an ETF with an expense ratio of 0.61% then you’re going to be paying $6.10 every year to the managers of the fund. Most funds have their holdings listed publicly on their website – Currently PHO has the following as their top stock holdings:

  • WAT      Waters Corp
  • ROP       Roper Industries Inc
  • PLL        Pall Corp
  • PNR       Pentair PLC
  • FLS         Flowserve Corp
  • MWA      Mueller Water Products Inc
  • ITRI        Itron Inc
  • WTS        Watts Water Technologies Inc
  • TTC         Toro Co/The
  • WTR        Aqua America Inc

 

Now that you have a nice list at your disposal the only thing left is to pick a few of these stocks to invest in. Look for standard things, like P/E ratio, growth, current events that make the company appetizing and go for it! Doing this will usually leave your investments more volatile as you will have less diversity but eliminate the expense ratio for each year and enable you more control over your investment make-up.

If you’re interested in different types of ETFs a have a few that you can pick from below:

  • USO (Oil)
  • PPA (Aerospace and Defense)
  • IDU (Utilities)
  • GLD (Gold – keep in mind that ETFs may not hold stocks but may instead hold physical commodities such as gold)
  • SLV (Silver)

 

Good hunting.

 

References:

[1] Invesco Distributors, Inc. “Product Details.” PHO – PowerShares Water Resources Portfolio. Invesco Distributors, Inc., n.d. Web. 16 Apr. 2015.

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