For a long time I have been talking about how important I think the water investment theme is. There is simply not enough potable water in the world. The near term consequences are tragic for certain countries but the long term reality (I think it is a reality) is the money is going to be spent trying to rectify the situation, at least partially. I do not know how successful it will be but the money will be spent and this means good things for related companies.
The current letter from Jeremy Grantham addresses shortages in things like water, potash and topsoil. The title is "Separating the Dangerous from the Merely Serious." To the extent that supply and demand matters (I think it does) it makes sense to invest in spaces where there is visibility for growing demand and questions about whether or not supply can keep up with demand. This subject points to investing long term in things like water, food, infrastructure and the resources that provide all these things. This is a theme I've been writing about and more importantly implementing for clients for a long time. The key to this, and stated in the previous paragraph, is thinking long term.
We have owned the PowerShares Water Portfolio (PHO) since that fund started. It is a boring hold yet over its life it is up 28% versus 6% for the S&P 500 (SPY) [neither figure includes dividends]. Market Vectors Agribusiness ETF (MOO), which is also a client holding, is up 25% since it's inception in 2007 versus an almost 12% decline for the S&P 500. You may draw a different conclusion but I believe these spaces have done better than the market because of the visibility for growing demand and the questions of supply constraints. Back to the Grantham letter, I had a thought that I am still trying to sort out. Many of the shortages Grantham writes about will come, he believes, from warmer weather and less rain. If countries need rain to grow crops (seed modification and farming efficiencies notwithstanding) then maybe we should invest in places where it rains a lot?
Among other destinations this would include Canada, which has a shockingly disproportionate amount of water, New Zealand, several countries in Asia and probably a couple of places in Africa. Here I am focusing on countries where they grow stuff. Does it rain in Tanzania? They grow stuff and just opened a stock market there--that is something to look into. There are of course other places. If there is anything to this, Canada (for example) won't have to confront the consequences of a meaningful drought.
I realize anything is possible but the idea here is a sort of brainstorming process. There are obviously plenty of ETFs and individual stocks to express this in a portfolio. Simple country funds would allow for capturing the benefit at the country level for this good fortune, niche funds would be a way to tap more directly into the theme and individual stocks would offer a way in to the narrowest part of the theme that I can think of, which is the Asian plantation stocks. I would note that the Global X Farming ETF (BARN) has at least 10% in small cap Asian plantations. This is an evolving thought, hopefully more to come.
Disclosure: Long PHO, MOO in client accounts