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Water is one of the world's most widely used and coveted resources. Similar to other commodities like gold and oil, water assets can significantly diversify any portfolio. Accordingly, the search for the best water funds investors can buy, to provide diversified exposure to this space, is a worthwhile quest

Of course, with commodities on a tear, many water funds have done quite well of late. Supply chain constraints have led to situations where utilities and other safe-haven assets have gotten bid up. Interestingly, this has happened while interest rates have risen.

That's not normally the case,  since many such assets are viewed as substitutes for bonds. And with bond yields now actually providing investors with some meaningful returns, the question is whether the rally of utilities and their peers can continue.

There aren't many exchange traded funds (ETFs) that provide direct exposure to the water sector, so finding a good fund can be difficult.

For investors seeking stable, long-term total returns, however, I think there are a few opportunities to consider. Here are three funds that I think provide investors with excellent means of playing the water space right now.

Invesco Water Resources ETF (PHO)

Invesco Water Resources ETF (NYSE:PHO) is a leading ETF focused on tracking the performance of the NASDAQ OMX US Water Index. PHO's assets primarily consist of companies which purify and conserve water for industrial, residential and commercial use.

Given the intense water shortages we're seeing, the Water Resources ETF is a great way for investors to gain exposure to what could become a lucrative sector over the long term.

This fund has amassed around $1.76 billion of assets under management (AUM). Some of the major holdings of PHO include American Water Works (NYSE:AWK), Ecolab Inc. (NYSE:ECL), Roper Technologies Inc (NYSE:ROP)., Xylem (NYSE:XYL) and Danaher Corp (NYSE:DHR). Water machinery makers dominate the fund, comprising 32% of its assets. That is closely followed by water utilities  which constitute 18% of the fund's holdings.

This ETF's yield sits just shy of 0.3%. Accordingly, investors looking for yield may want to buy a number of PHO's individual stocks with higher yields instead. That said, over the long-term, this fund's diversified exposure to the necessary and stable water sector remains attractive

First Trust Water ETF (FIW)

An intriguing exchange- traded fund dominated by mid-cap stocks is the First Trust Water ETF (NYSEARCA:FIW). Among the notable holdings of this ETF are Aecom (NYSE:ACM), Essential Utilities (NYSE:WTRG), American Water Works and Xylem.

FIW tracks the ISE Clean Edge Water Index, which screens for stocks in the wastewater sector that meet certain  requirements for liquidity, market capitalization and weighting concentration. Accordingly, using these screeners, this ETF has come up with a relatively concentrated portfolio of 36 holdings of the industry's top players. To ensure that a single  stock never dominates the exchange-traded fund, the portfolio is rebalanced semi-annually.

FIW has generated  a 10-year average annual return of 13.1%. That's not bad, and FIW has actually outperformed its benchmark, the Russell 3000 Index. Also, the ETF is one of the cheaper funds with an  expense ratio of 0.53%.

This fund yields 0.4%. That's certainly nothing to write home about. But this ETF's stock selection methodology makes it an interesting option for investors seeking exposure to water assets.

Invesco S&P Global Water Index ETF (CGW)

For those looking for a more global way to play this sector, the Invesco S&P Global Water Index ETF (NYSEARCA:CGW) is likely the way to go. Interestingly, this fund actually yields 2%,  providing meaningful income to investors looking for passive income streams. The fund has been able to generate that yield because of its focus on both developed and emerging markets in the water utilities, infrastructure, equipment and materials sectors.

This ETF is a multi-cap, blended fund which tracks the S&P Global Water Index.

Over 94% of the portfolio of Invesco S&P Global Water Index ETF is allocated to utilities and industrial firms.

The top holdings of CGW include French waste management, water management, and energy services firm Veolia Environnement SA (OTC:VEOEY); American Water Works Co. Inc. and Xylem,

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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