How to invest in water

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We know that water is the source of life. But it can also be a source of portfolio diversification. It sounds strange, we know, but remember: like gold and oil, water is a commodity, and it’s pretty scarce these days. So, like any other scarcity, water scarcity creates investment opportunities.

Key points to remember

  • Water is arguably the most important resource we have on planet Earth.
  • Water shortages can cause social, political and economic disruption.
  • Due to its importance, investors can diversify their portfolio by acquiring water-related assets and investments.

World water resources

About 70% of the earth’s surface is covered with water, but 97% of it is salt water, unsuitable for human use. Salt water cannot be used for drinking, crop irrigation, or most industrial uses. Of the remaining 3% of the world’s water resources, only about 1% is available for human consumption.

Global shortage

Rapid industrialization and increasing agricultural use have contributed to water shortages around the world. Areas that have experienced a lack of H2O include China, Egypt, India, Israel, Pakistan, Mexico, parts of Africa, and the United States (Colorado, California, Las Vegas, and the east coast), just to name only a few.

Pollution also highlights the need for clean water. In the United States, the dead zone off the Gulf Coast highlights the impact of fertilizer runoff, and methyl tert-butyl ether (MTBE), an additive in unleaded gasoline, can be found in well water from California to Maryland. Abroad, high-profile incidents in Russia, China and elsewhere demonstrate that pollution is not confined to the West. Of course, polluted water supplies further limit the amount of fresh water available for human use.

Index

Here are some of the more popular indices designed to track various water-related investment opportunities:

  • The Dow Jones US Water Index is made up of approximately 29 shares; it is a barometer composed of a large number of international and national companies affiliated to the water sector and having a minimum market capitalization of 150 million dollars.
  • ISE-B & S water index was launched in January 2006, and this index represents water distribution, water filtration, flow technology and other companies specializing in water related solutions. It contains more than 35 actions.
  • The S&P 1500 index of water services is a sub-sector of the Standard & Poor’s 1500 Utilities Index; this index is made up of only two companies, American States Water (NYSE: AWR) and Aqua America (NYSE: WTR).
  • The S&P World Water Index is an 11-year-old index that contains 50 companies around the world; their water-related activities fall into two areas: utilities and infrastructure, and equipment and materials.

The Bloomberg World Water Index and the MSCI World Water Index provide an overview of the water sector from an international perspective, although it can be quite difficult to find up-to-date information on either. other clues. There are also a variety of utility indices that include certain water stocks.

How to invest in water products

A glance at the holdings of any of the Water Indices provides an easy way to begin your search for suitable investment opportunities. Companies from General Electric, a blue chip mainstay, to Layne Christensen, small-cap, are all looking for a share of the water market. In addition to direct stock purchases, some of the larger companies offer dividend reinvestment plans. Companies seeking to profit from water related activities include beverage suppliers, utilities, water treatment / purification companies and equipment manufacturers, such as those who supply pumps, valves and desalination units.

As far as bottled water is concerned, the market is developing internationally. Demand is rising from China to Mexico, following in the footsteps of rising demand from US consumers. Estimates suggest that between 2007 and 2017, US per capita bottled water consumption increased by 61% – the average American drinks about 45 gallons of bottled water per year. On the desalination front, some 183 countries currently depend on desalination for at least part of their freshwater consumption needs.

If security selection isn’t your thing, ETFs, mutual funds, and mutual funds (UITs) also offer plenty of opportunities to invest in water. The Invesco Water Resource Portfolio (PHO) ETF is the largest, with a basket of 38 US-centric stocks (as of March 2020) that leans toward small and mid-cap companies. The iShares Dow Jones US Utilities Index (IDU) ETF offers some exposure to water-related stocks. Other new alternatives include the Invesco Global Water Portfolio (PIO) ETF, which tracks the Nasdaq OMX Global Water Index, and the First Trust ISE Water Index Fund (FIW). Based on popularity, new alternatives are slowly emerging.

In addition, the two-unit investment funds specializing in water-related investments are the Claymore-Boenning & Scattergood Global Water Equities UIT portfolio and the Claymore-Boenning & Scattergood US Water Equities portfolio.

The bottom line

Recent years have seen an increase in the demand for investments that seek to capitalize on the need for fresh, clean water. If the trend continues – and by all indications it will – investors can expect to see a plethora of new investments that provide exposure to this valuable commodity and the companies that bring it to market. There are currently many ways to add water exposure to your portfolio; most just require a little research. Opportunities to invest in this scarce resource flow freely, so take a plunge!

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