skip to Main Content
Water Treatment Plant

Investing in water: the new gold?

Alternative investments
1. Should you invest in Gold alternatives? Checking out 3 alternative metals
2. Should you invest in a garage?
3. Investing in water: the new gold?

Last Updated on October 15, 2020 by Daniel Woerle

We use it every day for a wide variety of purposes. It’s used for drinking, washing, rinsing, showering, etc. A lot of it is consumed for food and other goods, some of which require it in vast quantities. In short, we cannot do without it.

This is naturally: water, the trend raw material par excellence of the 21st century. I talked about investing in specific trackers when covering 5 thematic funds for the future. I now want to go deeper into my top pick namely water.

Not only private households, but above all agriculture and industry depend on having access to clean (drinking) water. However, clean water isn’t guaranteed around the globe.

This article will look closer at this scarcity and, based on that, will show which areas of water management are an acute need for investment. Based on that we can figure out where it is best to invest in water. Besides promising stocks, the focus is on some of the best water ETFs and global investment funds for water and how to invest in water.

Water: a scarce commodity

Water is vital. We cannot imagine life without it. After all, when we turn on the tap in the western world, clean drinking water comes out. This simple fact makes availability (and quality) of water critical.

In Belgium, we have free access to potable water, but we are also increasingly feeling the effect of periods of extreme drought. On our planet, there is only a limited amount of freshwater: about 2.5% of the total water surface. The rapidly growing population, the economic catch-up of emerging countries, and global warming create additional challenges that contribute to water scarcity.

According to the UN World Water Report, over 2.2 billion people worldwide don’t have permanent access to clean water. A third of them (750 million) do not even have a basic drinking water supply. And this number is exploding. Climate change and all its consequences. The human side and its quest for economic growth & prosperity and an ever-increasing world population are just a few reasons these figures will at least double by 2050. The UN estimate that around 5 billion people will then live in arid regions and face water scarcity problems.

Below is a visual representation of the consumption of water and water scarcity.

World water footprint
The amount of fresh water used in the world.

While (fresh) water itself might become scarce in the future, opportunities to invest in the blue gold have been around for over 15 years.

Why is water becoming increasingly scarce?

Climate change and the resulting lower rainfall or changing rainfall patterns, drought, and even drought periods and increased evaporation are the major reasons. However, besides the climate-related causes of water scarcity, the human factor is also a major one.

The largest water consumer is the agricultural sector (incl. livestock). It accounts for around 70% of global water consumption. The biggest problem within agriculture is that a large part of the water is lost after use and is not collected for recycling. Inefficient irrigation methods, inadequate technical equipment, and a lack of awareness of this global problem in some places mean that farmers waste enormous amounts of water or are using it inefficiently. In contrast to the climate-related causes of water shortages, but, these are comparatively easy to remedy by investing in water technology and know-how.

In addition, water is also used for industrial applications and households. Today, we see that many companies are looking for more efficient ways to manage water. In principle, there are already many technological possibilities, but the cost price is still a barrier for many companies. Technological evolutions are making it increasingly cheaper. We see that more and more companies are taking steps in the right direction. This is due on the one hand to the increasing social importance and on the other hand to the ever-stricter standards for industrial and drinking water. So companies are obliged to evolve along with it.

It is not only in peripheral regions of the world that the scarce raw material water is wasted. Even well-developed economies such as the USA or Great Britain waste vast amounts of unused water. In England and Wales, for example, around 20% of their drinking water consumed seeps into the ground through dilapidated pipes.

In the USA, according to the American Society of Civil Engineers, as much as 40% of water pipes are in very poor condition. Many countries, including some in Europe, are failing to invest in water, for example in building modern pipelines and infrastructure.

Growing awareness of a global problem

Water is becoming scarcer from day to day. This problem is being exacerbated by under-investment by states and a more prosperous lifestyle, notably in the Western world. At the same time, the population in developed countries with a higher level of education, is noticing this problem too.

The principle of sustainability should not only be applied to CO² emissions, but also to the water industry. Several countries  and private individuals also recognise this. Water is becoming more and more important as a scarce commodity. This is also attracting companies and investors’ attention. The amount of money companies invest in water is growing quick.

How to invest in water? Concrete investment areas

Water as a commodity is in great demand. However, what I have found is that water as a theme gets less attention when discussing sustainability and ethical investing than, for example, CO2 emissions or even guns. Although the water footprint is incorporated in sustainability ratings for companies, the theme still seems to be relatively underexposed. Unjust as we are all impacted by it on a daily basis and without, we simply cannot live.

But now the question arises on how to make an informed and investment choice in the blue gold. We will therefore first look at the water industry with all its sub-areas of the water cycle. These companies develop solutions for all kinds of water applications such as water supply, water purification, leak detection, and quality measurements.

In concrete terms, they are manufacturers of pumps, pipes, filters, irrigation equipment, and measuring and leak detection equipment. In addition, there are also companies that provide water infrastructure, water recycling, and desalination using filter stations and chemical processes. They play a necessary role in the challenges water faces by developing and improving techniques and products.

Besides extracting water, the treatment, supply and the latest technologies for electricity generation are important value drivers for the industry. Wastewater disposal, treatment, and recycling are also interesting areas of water management. But also special plants for desalination of seawater and power plants for electricity generation are promising future fields in which investing in water could be worthwhile.

Water and durability

Every drop of water must be used sensibly. Collecting and reusing water is crucial for a sustainable approach to the economy and the environment. It is better to monitor water in a circular process so that it is filtered and reused. In doing so, the water retains its full utility value.
There is a lot to gain from saving and collecting freshwater. On a domestic level, this includes toilets, showers, and taps. Also for industrial applications and within agriculture, many improvements are feasible. For example, there are already profitable initiatives in which the organic material of wastewater is reused as a fertilizer in agriculture or as a fuel for all kinds of applications. There is also a massive focus on vertical farming, where crops are grown vertically and with much less soil, water, and energy needs.

Water production - investing in water technology

Bottled water production

First, I should mention the water extraction. Because of the scarcity of water, many companies are focusing on alternative methods of water extraction on top of traditional methods of obtaining water.

For example, seawater desalination is a model with a promising future. E.g. in the Arab world, more and more such desalination plants are operating in coastal areas. ‘Fresh’ paths are being taken here. This is because, unlike the usual extraction of water-based on fresh water sources, saltwater is the source here. Considering 97% of earth’s total water resources is saltwater from oceans, which was traditionally considered unusable, we can see the future importance of such modern methods of seawater desalination.

The US company Xylem Inc. or their French competitors Veolia Environment S.A. are worth mentioning here. The former is also the only public company traded on the stock exchange, which specialises in water and has a global presence.

Water treatment – a value driver for water industry

Water treatment plant

This is because, besides supplying water through seawater desalination plants, the Group also operates in water processing with the sale of special pumps and systems for the treatment and purification of water. This area is also technologically advanced and innovative and is of growing importance for increasing water pollution. Market-leading companies in this sector are, for example, the Danaher Corp. group, which trades on the US stock exchange, or the German companies KSB SE & Co. KgaA and GELSENWASSER AG. Investing in water utilities seems to be a promising opportunity.

Wastewater - waste management & recycling

Waste water management

Another factor in water management is the processing and disposal of wastewater. The disposal of polluted water or “recycling”, i.e. cleaning for reuse, especially in the industrial sector, has developed into one of the core areas of the water industry. Industrial wastewater can often be processed so much that it can reuse industrially. Many companies are therefore investing in water technology to secure a share of this growing market for wastewater treatment.

This enables companies to use their water resources more efficiently and polishes up their water footprint, which is growing in importance. Companies such as Hyflux Ltd. or the Korean group LG Chem are worth mentioning here.

Best water ETFs and funds

Next to private investment in the already mentioned market-leading water companies of the different parts of the industry, investing in water funds and some of the best water ETFs seems to be an excellent opportunity.

There is also the option of investing in water in a more sustainable way, too. Here is a selection of some of the best water ETFs and promising global investment funds for water.

Active fund management

1. Pictet Water Fund

The Pictet Water Fund is the oldest and, with an investment volume of around 4.4 billion, the largest global investment fund for water. Compared with the global market index MSCI, it is similarly solid and has consistently outperformed, especially in times of crisis. The focus of this actively managed fund is the water supply, probably the most constant sector in the industry.

However, many companies focusing on the promising technology of the water cycle are also represented. The Pictet Water Fund appears to be a suitable investment in water for investors seeking long-term growth in their returns.

2. RobecoSAM Sustainable Water Fund

For sustainability-conscious investors, RobecoSAM Sustainable Water is an excellent option for environmentally responsible water investment. Focusing on wastewater treatment, water analysis, and infrastructure, this fund is also global.

It is in line with the modern trend towards sustainability and focuses on responsible, modern water management companies. This global investment fund for water is also acting worldwide in various areas of the industry, which makes it well diversified.

Passive funds / trackers

1. Lyxor World Water UCITS ETF–Dist

With around €675 million under management, this water ETF specialises in companies that generate at least 40% of their business income in the water industry. Its focus is on water infrastructure, supply and treatment.

The ETF contains the world’s 20 largest companies in the fields of water and hydropower, with each company having a maximum weight of 10%. Investing in water technology is an important factor here. Modern technologies in water disinfection, purification and desalination have a pronounced presence.

2. Guggenheim S&P Global Water Index ETF

Another ETF worth looking at is the Guggenheim S&P Global Water Index ETF. This ETF, which weighs almost 650 million euros, contains almost 50 stocks. These include companies that act and invest in water utilities, infrastructure, equipment, instruments, and materials. The already mentioned global players Xylem, Veolia, and Danaher are well represented in this index. This ETF, which is reassessed twice a year, focuses increasingly on companies that invest in water technology as a model for the future.

3. iShares Global Water ETF

With a capital volume of well over €1 billion, the iShares Global Water ETF is one of the largest and best water ETFs worldwide. More than 46% of the total share, originates from water supply companies. This passively managed ETF aims to provide a liquid exposure to leading listed companies from both developed and less developed countries related to the water industry. It operates globally and is strongly aligned with the S&P Global Water Index as its benchmark. The issuer is none other than Blackrock Asset Management.

This Post Has 0 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Mr. FightToFIRE

I'm the owner and the main writer of FightToFIRE, a personal finance blog focussing on Financial Independence and Retiring Early. During the regular working hours, I'm a developer for a major financial institution in Belgium. During my off-hours, I write. do some weight lifting and other stuff to keep me healthy and fit.

Back To Top
×Close search
Search