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 turns out to be quite scarce today. So, as with any other scarcity, water scarcity creates investment opportunities.
World water resources
Approximately 70% of the earth’s surface is covered with water, but 97% is salt water, which is not suitable for human use. Salt water cannot be used for drinking, watering crops, or for most industrial uses. Of the remaining 3% of the world’s water resources, only about 1% is available for human consumption.
Rapid industrialization and increased agricultural use have contributed to water shortages around the world. Areas that have experienced a lack of HtwoOr they include China, Egypt, India, Israel, Pakistan, Mexico, parts of Africa, and the United States (Colorado, California, Las Vegas, and the East Coast), to name just 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 tertiary butyl ether (MTBE), an additive in unleaded gasoline, can be found in well water from California to Maryland. Highly publicized overseas incidents in Russia, China and elsewhere show that pollution is not confined to the West. Of course, dirty water supplies further limit the amount of fresh water available for human use.
Here are some of the most popular indices designed to track various water-related investment opportunities:
- The US Dow Jones Water Index it is made up of approximately 29 populations; is a barometer made up of a large number of national and international companies that are affiliated with the water business and have a minimum market capitalization of $ 150 million.
- The ISE-B & S water index was launched in January 2006 and this index represents water distribution, water filtration, flow technology, and other companies that specialize in water-related solutions. It contains more than 35 actions.
- S&P 1500 Water Services Index is a subsector of the Standard & Poor’s 1500 utility index; This index is made up of just two companies, American States Water (NYSE: AWR) and Aqua America (NYSE: WTR).
- The S&P Global Water Index It is an 11-year index that contains 50 companies worldwide; Its water-related businesses are divided into two areas: utilities and infrastructure, and equipment and materials.
The Bloomberg World Water Index and the MSCI World Water Index offer a look at the water industry from an international perspective, although it can be quite difficult to find up-to-date information on either index. There are also a variety of utility rates that include some water reservoirs.
How to Invest in Water Commodities
A look at the holdings of any of the water indices provides an easy way to begin your search for suitable investment opportunities. Businesses from stalwart General Electric to small-cap Layne Christensen are looking for a piece of the water market. In addition to direct stock purchases, some of the larger firms offer dividend reinvestment plans. Companies looking to profit from water-related businesses include beverage providers, utilities, water treatment / purification companies, and equipment manufacturers, such as those that provide pumps, valves, and desalination units.
When it comes to bottled water, the market is growing internationally. Demand is increasing from China to Mexico, following in the footsteps of the rebound in demand from US consumers. Estimates suggest that from 2007 to 2017, Americans’ per capita bottled water consumption increased 45%; the average American drinks approximately 42 gallons of bottled water a year.On the desalination front, some 150 countries currently rely on desalination for at least part of their freshwater consumption needs.
If stock selection doesn’t interest you, ETFs, mutual funds, and unit investment trusts (UITs) also provide many opportunities to invest in water. The Invesco Water Resource Portfolio ETF (PHO) is the largest, with a US-centric basket of 34 positions (as of March 2020) leaning toward mid- and small-cap companies.The iShares Dow Jones US Utilities Index ETF (IDU) provides some exposure to water-related stocks.Other new alternatives include Invesco Global Water Portfolio ETF (PIO), 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.
Additionally, the investment trusts of two units that specialize in water-related investments are Claymore-Boenning & Scattergood Global Water Equities ITU and Claymore-Boenning & Scattergood US Water Equities portfolio.
The bottom line
Recent years have seen a rebound in demand for investments seeking to capitalize on the need for clean, fresh 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 precious commodity and the companies that bring it to market. Today, there are numerous ways to add water exposure to your portfolio; most simply require a little research. Opportunities to invest in this scarce resource flow freely, so dive in!