Money is being poured into the clean water industry, but few on Wall Street seem to be talking about it, with larger concerns over oil, gold and other commodities.
That’s a mistake, as analysts and industry insiders say, especially as clean water continues to rack up impressive gains on both an infrastructure and financial assets basis.
“We’re seeing a lot of investor demand for this asset as urbanization continues to change global consumption,” says David Richardson, executive director of Impax Asset Management, a financial services firm in New York. “Research by McKinsey Global Institute found that there is an estimated $7.5 trillion that will be spent globally over the next 15 years on water infrastructure.”
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Richardson says there’s an increasing gap between supply and demand in the water sector, along with “increasing climate disruptions and extreme weather events that require substantial investments in water treatment technologies and distribution infrastructure.”
“This opens the door to investment opportunities in many new technologies and services to conserve, treat and distribute water,” he says. “Plus, domestically, President (Donald) Trump has labeled poor water quality as a major issue and a priority to be addressed, and so we’re seeing a lot of opportunity for investors both in the U.S. and abroad.”
On a global basis, water demand is also surging due to population growth and changing diets, says Doug Morrow, associate director at Sustainalytics, an ESG research firm that tracks environmental and industrial water issues. “This is the case even as investment in water supply infrastructure is not keeping pace, and the lack of a clear price signal is discouraging efficient water use,” he says.
Against this backdrop, Morrows says his firm’s research found that more than 40 percent of researched companies in the food products, semiconductors and utility industries have a poor water management program, despite the large water requirements of these industries.
“Additionally, companies that compete in a water-intensive industry, have operations in countries that are (or are likely to become) water stressed, and have poor strategic awareness face particularly significant water risks and may represent engagement targets for investors,” he says. “Investors can potentially obtain exposure to water opportunities by investing in the desalination, recycled wastewater and water infrastructure sectors.”
Currently, there are exchange-traded funds that will enable liquid-minded investors to do just that.
Start with First Trust ISE Water ETF (ticker: FIW), a clean water-based fund with $225 million in assets, and a year-to-date return of 6.06 percent through April. The fund’s share price is $43 — a level it has maintained since late January, when the fund’s share price dipped below $40.
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The fund tracks the price and yield of the ISE Water Index, a benchmark industry index. Its expensse ratio is 0.40 percent, or $40 annually per $10,000 invested.
Stocks in the index include IDEXX Laboratories ( IDXX), Agilent Technologies ( A), Roper Technologies ( ROP), Danaher Corp. ( DHR), Ashland Global Holdings ( ASH), American Water Works Co. ( AWK), and Ecolab ( ECL), which together comprise 26.6 percent of the fund.
Another, even larger water-themed fund is PowerShares Water Resource Portfolio ETF ( PHO), a fund with $750 million in assets under management which closely tracks the Nasdaq OMX US Water index.
The fund, which is trading at $27 per share, is also up 6 percent on a year-to-date basis, and is up almost 20 percent on a 12-month basis. IDEXX, Ecolab, Roper, and Danaher also comprise about 27 percent of the fund’s holdings. Its expense ratio is 0.50 percent.
If you’re targeting water stocks or funds, industry experts advise taking the long view and focusing on financial performance over environmental impact when tracking portfolio progress.
“The issue of water scarcity has gradually become important in recent years,” says Tenpao Lee, an economics professor at Niagara University. “However, this is a long-term issue, as environment and pollution caused by civilization will be noticed slowly. Also, the balance between economic development and clean water issues depends on politicians’ wisdom.”
Lee says new water investors should know the portfolio objective is to seek the “highest rate of returns, not to save the Earth or to improve the long-term quality of life.”
“The industry is new, and therefore will have major consolidation and restructuring,” he says.
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“To invest in clean water funds in the short term may be very volatile and not be profitable at all,” he says. “In the longer term, as the issue becomes serious, more resources will then be diverted to this sector.”
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Liquid Gold: Clean Water Funds Attract Interest originally appeared on usnews.com
