Water: It's Not Just for Drinking

Includes: CGW, FIW, PHO, PIO
by: Aaron Katsman

As the oppressive heat of summer is upon us, we are constantly reminded of our need for water. We walk around with water bottles, force our kids to drink at every break in their game of tag, and run through the sprinkler to cool off. In a nutshell, we need water.

Water as an Investment

As abundant as it appears to be, only about 20% of the global population has access to running water. Additionally, only one-third of the world’s population has access to clean water. Many estimate that in 40 years, more than four billion people, half the world’s population, are expected to live in areas that are chronically short of water. Moreover, economic development has placed greater pressure than ever on the supply of fresh water. In 1900, the global annual water use per capita was 350 cubic meters. In 2000, that number had grown to 642 cubic meters. In the United States alone, the demand for water has tripled in the past 30 years, while the population has grown by just 50%.

China, Africa and the United States

The need to increase access to clean water around the world has led some to call water the “oil” of this century. As the world becomes more and more developed, wealthy countries will not only be able to afford, but also will have a moral obligation to provide this basic necessity to their citizens. China and India, which are experiencing economic booms right now, are therefore investing hundreds of billions of dollars in improvements to their water infrastructure, while many sub-Saharan African countries beginning to show signs of economic growth will soon need to begin to provide the basics to the public. In all three of these examples, these are huge populations that are in their infancy when it comes to the basic needs of their citizens. They have been steeped in poverty for decades, and only now are they emerging. As such, they need to start from scratch, which means access to water and building roads.

In terms of the United States, the Environmental Protection Agency estimates that up to $1 trillion will have to be spent on upgrading U.S. water infrastructure over the next few years. The country’s aging infrastructure, much of which is more than 100 years old and has long exceeded its useful life, is in a state of utter disrepair. In the United States alone, the network of drinking water pipes extends more than 700,000 miles – more than four times the length of the National Highway System. This all adds up to the need for new reservoirs, better water canals and more efficient irrigation systems. And Israel is a world leader in the necessary technology for making such repairs.

How To Invest

There are 3 ways to try and profit from the global water problem.

  • Private Investment – For investors who have very large sums of money, investing directly in companies that are investing in water technologies is an option. There is no shortage of local, Israeli companies looking for investment capital. Keep in mind that investing in private companies comes with high risk and high reward.
  • Individual Stocks- For the majority of investors, investing in private companies comes with one prohibitive barrier of entry and that’s the huge amount of money needed to invest. For those that don’t have a spare million, individual stocks that trade in public markets is an option. There are plenty of publicly traded companies that work in the water industry.
  • Exchange Traded Funds - Investors looking for both more diversification and not wanting to have to pick water stocks, can buy one of the water ETFs PowerShares Water Resources Portfolio (NYSEARCA:PHO), PowerShares Global Water (NYSEARCA:PIO), Guggenheim S&P Global Water Index (NYSEARCA:CGW), and First Trust ISE Water Index (NYSEARCA:FIW) that trade on the stock exchange. Here you get a basket of stocks that are focused on the water industry and instead of buying 1-2 companies, you get a fund that is investing in many more shares, thus helping diversify your holdings.

Get Advice

In light of the above, improving the water infrastructure is set to be a popular investment theme for many years to come. To consider whether investing in water would be right for you, speak with your financial adviser to see if there is room in your portfolio to invest in water.