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How to Invest in Water

water investments

Most sustainability-driven investors gravitate towards the more classic sectors in sustainability: solar plants, wind farms, greenhouse gas reduction technologies, etc. Although these areas are important in terms of innovation and investment, our most important resource – water – is an area that is growing increasingly popular as a sustainability-focused or impactful investment area. 

There is no doubt that water is one resource that needs more development and more attention — and it is urgent. You can read more about why water investments are increasingly important here, but in this article we’ll look at how you can invest in the preservation, efficiency, and conservation of water. 

Global Water Resource 

Although roughly 70% of the earth is covered in water, 97% of that is salt water which is “… cannot be used for drinking, crop irrigation, or most industrial uses” (McWhinney, Investopedia). Only about 1% of the freshwater is easily available for human consumption. 

As the global human population grows on a path to reach 10 billion people by 2050, there are a lot of upcoming challenges relating to how we will efficiently utilize our available water.

Although it may not be obvious, water is like any other commodity and it’s scarcity is making investors realize that more and more.  Investing in water conservation, water purification technologies across various industries is a great way to invest with the intent of having a positive impact and diversifying your portfolio. 

World fresh water resources

4 Ways to Invest in Water

#1: Invest in Private Water Infrastructure Companies

Companies that make everything from pipes, pumps, meters and filters is one way you can invest in water infrastructure. These companies not only understand the economics of water, but are creating the tools for humans to access water. With that said, these are good companies to invest it because they understand the biggest problems in water availability, and with more capital, they are in a position to improve efficiencies in the industry. In addition, water utility companies, and companies that clean, purify, and distribute water will also go into this investment category. 

Olivia Raimonde from CNBC reports that “Share prices for U.S. water utilities are on the rise as investors inject more money into socially responsible companies.”

“While most utility shares are outperforming the markets, water utility stocks are being boosted by fears of water shortages and the rapid increase in assets of sustainable funds known as ESG.” she added.

#2: Invest in Public Water Stocks

Investing in public stocks is a great way to contribute to global water issues. Joshua Warner wrote this informative article that can help you form a strategy before placing your trade, giving emphasis on thorough research on companies you aim to invest in and creating a list of the types of investments you can make.

Warner writes that there are different types of water stocks: regulated vs. unregulated water industry, which he distinguished by explaining that “A regulated business is defined as any industry that has its revenue constrained by economic regulations in some form. This means companies are limited in terms of the amount of revenue and profit it can make by selling water, but it makes their income more reliable too. Unregulated businesses are not subject to any limitations. This means income from these activities is less predictable but able to grow at a much faster rate than regulated businesses.”

He further discusses that water stocks can be categorized into two types:

First are water utilities which are responsible for treating and distributing drinking water to the public and second are the companies that supply the utilities with technology, equipment or services that help them run their networks or improve their businesses.

Which Indexes to Look Into for Water Investing

As a water investor, you’ll need to track the performance of your investments on a regular basis.

That job is best accomplished by following one of these water investing indices:

  • The Dow Jones U.S. Water Index. This index tracks the top companies. Stocks and funds operating in the U.S. water sector. If you’re investing in high profile companies like American Water Works or Aqua America, this is your “go to” water investing index.
  • The S&P Global Water Index. This index provides coverage of 50 water-related companies across the globe. The index is broken down into two categories – water utilities & infrastructure and water equipment & materials.
  • NASDAQ OMX Global Water Index. This index is “designed to track the performance of companies worldwide that are creating products that conserve and purify water for homes, businesses and industries,” according to the NASDAQ web site. It follows equity-only stocks and funds.
  • The S-Network Global Water Indexes – These indexes are designed, as the Index notes, to “serve as fair, impartial and transparent measures of the performance of the Global Water Industry.” There are three indices included in the S-Network family – the S-Network Global Water Index; the S-Network Global Water Works Index; and the S-Global Water Tech Index.

#3: Invest in Public ETF’s

“An exchange-traded fund (ETF) is a basket of securities that trade on an exchange, just like a stock.” (Chen)

Unit Investment Trusts (UITs) 

A unit investment trust (UIT) is a U.S. financial company that buys or holds a group of securities, such as stocks or bonds, and makes them available to investors as redeemable units. (Chen)

Mutual Funds

A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities. (Hayes)

4 Best Water Exchange-Traded Funds

As noted above, water-related ETFs are a good way to break into the water investment market. There are plenty of water ETFs to choose from so choose carefully. Start your investment research by looking at these funds:

1. Invesco Water Resources ETF (PHOGet Report)

This fund with over $766 million in assets, has a decidedly US-focus, and steers toward mid-size and small-cap companies. Performance has been solid with the fund posting double-digit gains over the past three- and five-year tracking periods.

2. Invesco S&P Global Water ETF  (CGWGet Report)

This ETF expands its scope, including water stocks from around the world. It also invests in large-cap water companies, with over 50 companies represented in the fund. The fund has returned positive gains in the past one-year, three-year, and five-year periods.

3. Guggenheim S&P Global Water Index ETF   (CGWGet Report)  

This water fund offers a good cross-section of water stocks. At 0.64%, the fee is moderately high for an ETF, but the fund’s stock lineup is impressive, and the fund is well managed.

4. PowerShares Global Water Portfolio ETF  (PIOGet Report)  

This ETF follows the Nasdaq OMX Global Water Index, investing primarily in large-cap growth water industry stocks across the world. It has a special focus on European water stocks, covering companies in Switzerland, France and the UK.

#4: Invest in ESG Funds with a Focus on Water

ESG measures — which investors can use to assess the level of a company’s environmental, social and governance responsibility — are increasingly being considered in investment decisions, and U.S. water utilities are reaping the benefits. In 2019, Aqua America, American States Water Co and American Water Works have soared to record levels, outpacing the S&P 500 and other utility stocks (Raimonde, CNBC).

For more information on ESG investing, read: Sustainable Investing & The ESG Criteria: Reasons To Become An ESG Investor

ESG funds that hold U.S. water utilities

In summary, there is more risk in terms of investing in water when compared to investments in other natural resources, which is why it is essential that you do your due diligence and attain as much knowledge before you enter the world of water market.

October 30, 2019

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