The Conversation (0)
It may seem strange to invest in something so basic and ubiquitous, but water is tied to the markets in many ways.
Overall, diminishing water supplies and increasing demand for clean drinking water means that investors may have the option to place their capital where it may serve altruistic purposes while at the same time turning a considerable profit. In an interview with Barron’s, Matt Sheldon, a co-portfolio manager at Kleinwort Benson Investors, subadvisor to the Calvert Global Water Fund, spoke about what it means to have a diversified portfolio of water stocks and whether or not water may be seen as a narrow investment.
A variety of opportunities
“Water is incredibly diverse in terms of end markets,” Sheldon explained. “We’re able to replicate a global portfolio that isn’t in favor or out of favor, that can grow just a little bit better than the market. We have the offense of our cyclicals, the defense of our utilities, and geographic dispersion. That allows us to pick the better regulatory regimes, the better housing cycles, and companies that are totally cycle-independent.”
Water demand and profitability is driven by population growth, urbanization, industrialization, regulation and infrastructure rehabilitation. As Sheldon told Barron’s, these factors will only increase their effects over time due to resource scarcity, demographic shifts and climate change.
As Resource Investing News has previously explored, the shortage of freshwater shortage is a serious and growing problem. Tackling the issue will require a range of projects and strategies such as improving existing infrastructure for water delivery, bettering sewage treatment and upgrading irrigation. Finding ways to produce energy more cheaply would also ease the cost of transporting water as well as desalinating or otherwise treating it to make it potable.
All in all, this variety of approaches to the water shortage problem means that there are a variety of plays investors can make related to water, and there is likely a stock or portfolio to suit every need or interest. Options for investment can include leading conglomerates with a hand in many different solutions to water related issues. However, indirect investments through leading solar companies may also be worth a look, according to the Motley Fool.
Water worth more than its weight in gold?
In August last year, Bloomberg reported that water company shares were beating shares of oil and gold producing companies as governments worldwide continued to increase their spending on basic water infrastructure to avoid disruptive shortages.
“We can’t live without water, we can live without gold,” Simon Gottelier, a fund manager at Impax Asset Management Group Plc, told Bloomberg. “As a sector, it has a unique set of long-term drivers based around the need for new investments, predominantly in emerging markets. Water is about as attractive as it gets.”
Jim Rogers, chairman of Rogers Holdings, told reporters, “[i]f you can find ways to invest in water, you will be extremely rich because we do have a serious water problem in many parts of the world like India, China, the southwestern part of the U.S., and west of the Red Sea.”
Water companies
SJW Corp (NYSE:SJW)
SJW Corporation has four subsidiaries including San Jose Water Company, Texas Water Alliance Limited, SJW Land Company and SJWTX, Inc. San Jose Water Company provides water services to around a million people in metropolitan San Jose, California, and Investing.com recommends SJW Corp as a good choice for a company to add to one’s portfolio for those who want to add water into their investment mix. SJW has has an expected earnings growth of 6 percent, according to Investing.com, and its dividend yield is 2.53 percent.
PowerShares Water Resources (NYSEARCA:PHO)
PowerShares Water Resources is an exchange-traded fund comprised of water resources. It concentrates on U.S. and North American industrial manufacturers that make products for the purification and preservation of drinkable water. According to the Fool, 90 percent of the fund’s assets are invested in common stocks and American Depository Receipts (ADRs) of companies in the NASDAQ OMX U.S. Water Index. One-year performance statistics for PowerShares Water Resources have shown that its performance closely mirrors the movements of the Water Index.
AECOM Technology Corporation (NYSE:ACM)
Also recommended by investing.com was AECOM Technology Corporation with an expected earnings growth of 5.7 percent. AECOM provides managerial and technical support services to government and private clients around the world including consulting, planning, designing and construction management services. Among many types of projects covered, AECOM works on water and wastewater facilities.
Connecticut Water Service Inc. (NASDAQ:CTWS)
Connecticut Water Service operates in water activities and services as well as rentals and real estate transactions. Named as a top water pick by Investing.com, Connecticut Water had supplied water to 90,000 customers in 55 towns in Connecticut as of December 2011. The company has an expected earnings growth of 3.4 percent and a dividend yield of 3.01 percent.