Understanding Water Investments
Water Investments: Water has an easy business case as it is one of the most valuable resources and will become much more limited. Over 97% of the water on Earth is salty, making up about 70% of the planet’s surface. Most industrial applications—farming, irrigation, and drinking—are all prohibited by saltwater. Just over 1% of the remaining 3% of global water resources are suitable for human use.
Global water scarcity results from growing agricultural demand and rapid development. China, Egypt, India, Israel, Pakistan, Mexico, much of Africa, and the United States (Arizona, New Mexico, California, and West Texas), to mention a few, have all had a shortage of H2O.
Furthermore, emphasizing the necessity for clean water is pollution. The dead zone along the Gulf Coast is evidence of the effects of fertilizer runoff, and well water from California to Maryland contains methyl tertiary butyl ether (MTBE), a component of unleaded gasoline.
Evidence that pollution is not exclusive to the West comes from well-publicized occurrences abroad in China, Russia, and other places. Naturally, contaminated water sources further reduce the amount of freshwater that is available for human consumption.
An Investment of $55 Billion on Clean Water
President Biden enacted the Infrastructure Investment and Jobs Act on November 15, 2021. The bipartisan infrastructure plan’s $1.2 trillion in investment includes $55 billion for producing clean drinking water, $65 billion for sustainable energy, and $21 billion for sanitizing hazardous and contaminated sites.
The bill would increase access to clean drinking water for homes, companies, schools, and childcare facilities in urban and rural locations, which is terrific news for those supporting clean water. The law will also invest in water infrastructure to remove lead service pipes.
Indexes of Water Investment
- The following are a few of the more well-liked indexes created to monitor different investment possibilities connected to water:
- The Dow Jones U.S. Water Index is a barometer of several local and foreign firms involved in the water industry with a minimum market capitalization of $150 million. It consists of around 29 stocks.
- Launched in December 2000, the ISE Clean Edge Water Index represents firms specializing in water-related solutions, including water distribution, filtration, and flow technology companies. There are 35 stocks in it.
- A sub-sector of the Standard & Poor’s 1500 Utilities Index, the S&P 1500 Water Utilities Index consists of only two companies: Aqua America (NYSE: WTR) and American States Water (NYSE: AWR).
- The 50 firms that comprise the S&P Global Water Index were added in 2001. Their water-related industries are divided into water utilities and infrastructure and water equipment and materials.
- A further worldwide perspective on the water business may be obtained via the MSCI Global Sustainable Water Index. The index is centered on established and up-and-coming businesses that get at least half of their income from sustainable water services and goods.
- Some water equities are included in several utility indices as well.
2.3 billion.
According to the United Nations, 2.3 billion people live in “water-stressed” nations, meaning they use more than 25% of their freshwater supplies annually. Water shortages might force 700 million people to relocate by 2030.
Investing in Water Securities: A Guide
Water-related industries may be profitable for beverage companies, utilities, water treatment and purification companies, and equipment manufacturers (e.g., pumps, valves, and desalination units).
A simple place to start your search for good investment options is to look at the holdings of any of these water indexes. Businesses vying for a slice of the water business range from small-cap Layne Christensen to blue-chip giant General Electric. Aside from buying direct shares, several prominent companies provide dividend reinvestment programs.
International demand is increasing for bottled water. Following the surge in U.S. consumer demand, demand is growing from China to Mexico. According to estimates, the typical American consumes around 45 gallons of bottled water annually, and between 2010 and 2020, the country’s per-capita consumption of bottled water climbed by 61%.
One hundred seventy-seven nations depend on desalination to meet some of their freshwater consumption requirements, according to 2018 UN research.
If stock selection isn’t your thing, there are other ways to invest in water: mutual funds, exchange-traded funds (ETFs), and unit investment trusts (UITs). The biggest is the Invesco Water Resource Portfolio ETF (PHO), which has 38 holdings as of February 2022, primarily mid- and small-capitalization enterprises focused on the United States.
There is some exposure to equities connected to water via the iShares U.S. Utilities ETF (IDU).
Additional options include the First Trust ISE Water Index Fund (FIW) and the Invesco Global Water Portfolio ETF (PIO), which follows the Nasdaq OMX Global Water Index.
Popularity is progressively giving rise to other options.
As a commodity, how can you invest in water?
Water futures are traded on the Chicago Mercantile Exchange and are linked to Californian water costs. Through these futures contracts, investors may speculate on the price of water in the future by wagering on the Nasdaq Veles California Water Index’s future value.
How Does Michael Burry Make Water Investments?
The Big Short ends with revelations that Michael Burry, the founder of Scion Capital, made investments in water after his profitable short sale. Burry clarified in subsequently conducted interviews that “eating is the way to invest in water.” That is, cultivate food in regions with plenty of water and transfer it to places with less water for sale.” A farm in an area with a lot of precipitation is betting on the future worth of water. However, it could be simpler for individual investors to concentrate on water equities.
How can water stocks be invested?
Stocks of businesses with a solid connection to irrigation, utility, water treatment, or other water-related sectors are known as water stocks. Investing in these may be done by purchasing individual company stocks or by buying an ETF or mutual fund with a significant amount of exposure to water stocks.
The Final Word
The demand for investments that benefit from the need for clean, fresh water has increased recently. If the trend continues, investors may anticipate many new assets that expose them to this valuable commodity and the companies that provide it to the market.
These days, there are many strategies to increase the amount of water exposure in your portfolio; most take a little research. There are plenty of opportunities to invest in this limited resource.
Conclusion
- The most valuable resource on Earth is water.
- Water shortages may cause social, political, and economic unrest.
- Water is becoming increasingly scarce due to pollution, climate change, and rising demand.
- Due to its significance, investors may diversify their portfolios by purchasing investments and assets connected to water.
- Regular investors may access the securities linked to water via mutual funds, exchange-traded funds, and indexes.
