Climate change is a threat to clean water for drinking and growing food, making a scarce resource even more valuable.
Water isn’t just valuable because it’s a human right that none of us can live without. It’s also valuable in the monetary sense, as industries such as mining, meat production and textiles would shrivel without water.
“Water security is critical for most sectors to operate successfully, and therefore is intrinsically linked to positive return on investment,” says Alix Lebec, founder and CEO of finance and philanthropy consultancy Lebec.
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With monetary value comes the possibility for investing, and ways for investors to get exposure to water have been proliferating.
“Over two billion people lack access to safe water, and climate change threatens to increase this figure dramatically due to droughts and flooding,” Lebec says. “We are undervaluing water’s importance and our interdependence to it.”
Beyond water utilities, which are a bedrock for communities around the world, other companies are working on technology for water conservation and purification.
To help capture this value, Wall Street has created an increasing number of mutual funds and exchange traded funds (ETFs) that can broaden investor reach and reduce risk.
“ETFs can be especially suitable for early-stage themes like clean water because they can capture the leaders in the space today along with the potential leaders of the future,” says Madeline Ruid, research analyst at Global X, which offers the Global X Clean Water ETF (ticker: AQWA).
| Water stock/fund | Year-to-date return as of July 11 |
| American Water Works Co. Inc. (AWK) | 4.4% |
| Consolidated Water Co. Ltd. (CWCO) | -25.6% |
| Global Water Resources Inc. (GWRS) | -7.1% |
| Valmont Industries Inc. (VMI) | 16.4% |
| Ferguson PLC (FERG) | 2% |
| Invesco Water Resources ETF (PHO) | 9.1% |
| Fidelity Water Sustainability Fund (FLOWX) | 11.2% |
American Water Works Co. Inc. (AWK)
A logical place to begin a list of water investments is with utilities.
These companies offer a measure of diversification to a portfolio because people and businesses will need water regardless of what the economy is doing. While it’s unlikely that utilities will outperform growth stocks when the market is doing well, you’ll be glad to have utilities during market downturns when riskier stocks are out of favor.
With a market capitalization of $27 billion, American Water Works is one of the largest utilities of any type and is bigger than some electricity providers.
As the largest listed water and wastewater utility in the U.S., the company provides services to residences, public buildings, and commercial and industrial businesses. It also has long-term military contracts that provide an extra layer of stability.
Consolidated Water Co. Ltd. (CWCO)
Ruid says desalination is a high-growth-potential technology that “may become more prevalent as governments and industries work to minimize water stress.”
Consolidated Water is a seawater desalination company that supplies drinking water to two of the three most populated areas on Grand Cayman Island.
It has long-term contracts with government utilities in the Cayman Islands, the Bahamas and the British Virgin Islands, giving it exposure to the tourism industry in the Caribbean.
In addition to water-related products, the company also designs, constructs, sells, operates and manages water infrastructure.
Global Water Resources Inc. (GWRS)
This pure-play water resource management company owns and operates 29 systems that provide water, wastewater and recycled water services to utilities operating in communities around metropolitan Phoenix and Tucson, Arizona.
This footprint positions the company in areas that have experienced some of the fastest population growth in the U.S., expanding the need for its water services.
The company is well positioned, since developers of new subdivisions will have to turn to recycled or imported water in addition to local underground supplies.
Valmont Industries Inc. (VMI)
Agriculture would be impossible without water. The industry provides food for the planet and fiber for clothing and is only becoming more important as the global population grows.
According to the United Nations Food and Agriculture Organization, between now and 2050 more water will be required to grow some 60% extra food needed to support a global population of 9 billion people.
Irrigation will continue to play a big role in agriculture, and Valmont makes center-pivot irrigation systems for watering crops. Those are the sprinklers that water circular agricultural fields. The company says it has nearly 250,000 of them around the world.
Valmont also uses technology that can help farmers view their systems of pumps, pivots and crops and make decisions more efficiently.
Beyond water, the company also makes telecom towers, energy grid infrastructure and light poles.
[READ: 7 Best Renewable Energy Stocks to Buy]
Ferguson PLC (FERG)
This multinational company distributes products to the water, sanitary sewer and stormwater management industries and counts water sewer authorities, utility contractors, public works contractors and heavy highway contractors as customers.
The company is involved in both residential and non-residential markets, which can provide some cushion when one is doing better than another.
For its most recent quarter, the company reported sales growth of 2.4%. In addition to organic growth, the company completed three acquisitions during the quarter and two subsequent to it.
While acquisitions can be an expensive way to grow, they are also relatively quick compared to a company building its own assets. Still, Ferguson is planning $350 million to $400 million in capital expenditures this year.
Invesco Water Resources ETF (PHO)
Investors who want to go the ETF route, either in lieu of individual stocks or in addition to them, can consider this fund. With more than $2 billion in assets under management, it’s the biggest water ETF trading in the U.S., according to VettaFi’s ETF Database.
The fund invests in companies that create products that conserve and purify water for homes, businesses and industries. PHO has an expense ratio of 0.6%, or $60 in annual fees on an investment of $10,000.
Fidelity Water Sustainability Fund (FLOWX)
BNB Paribas estimates the world will need to invest more than $1 trillion over the next 10 years to ensure everyone has access to safe water.
“This gap represents a $1 trillion market opportunity for investors, including a unique diversification strategy,” Lebec says. “Without a major shift to mitigate the impacts of a warming planet, water will only become more valuable, and the companies that deliver affordable, socially equitable and environmentally sustainable water access will become more important and relevant.”
She points to this mutual fund (it’s technically not an ETF) as one option available to retail investors looking to get exposure to sustainable water investments.
The fund normally invests at least 80% of its assets in securities of companies included in the S&P Global Water Index or those the adviser thinks are “developing efficiencies, extending the life cycle and/or identifying affordable new technologies to deliver safe, reliable or easily accessible water.”
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7 Best Water Stocks and ETFs to Buy originally appeared on usnews.com
Update 07/12/24: This story was previously published at an earlier date and has been updated with new information.
