Water is not only essential for life itself, but also plays a crucial role in most economic activities.
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According to the ancient Chinese philosophy, Feng Shui, five elements make up the totality of ecosystems in nature. Earth, fire, metal, water, and wood are believed to lead all-natural phenomena worldwide. Among these, water is one of the most widely used commodities that we have mistakenly taken for granted. Water is not only essential for life itself, but it plays a crucial role in most economic activities. The former U.S. President Dwight Eisenhower was once quoted saying, “among these treasures of our land is water, fast becoming our most valuable, most prized, most critical resource.”
Water Demand is Increasing Globally
The “Human Right to Water and Sanitation” was officially recognized by the United Nations on July 28th, 2010. Furthermore, water use has evolved to play an essential role in almost all economic activities. It can be found in different applications ranging from manufacturing to consumer staples, food and beverages, healthcare, and agriculture.
The water demand has increased 600% globally in the last 100 years. The current global water demand of 4,600 km^3 per year is expected to increase by 20% to 30% by 2050, up to 5,500 to 6,000 km^3 per year.
Tightening Water Supply
As water covers 70% of the planet’s surface, people assume that there is enough water to satisfy all human needs. A common misconception that is sadly far from the truth. As 97% of the planet‘s water is saltwater, it cannot be used for crop irrigation, industrial use, or even drinking. In fact, only about 1% (93,113 Km3) of the remaining 3% of freshwater is readily available for human use. That is without accounting for the negative impact climate change will no doubt have on the Earth’s resources. It is now evident that the growing demand for fresh and clean water outpaces the limited supply.
Pressing Need for Private and Public Water Investments
Water sustainability is under increasing scrutiny. Estimates by the World Resources Institute suggest that 66% of the world’s population could be living under water-stressed conditions by 2025. Unsurprisingly, the United Nations has placed water at the center of sustainable development.
Expanding economies, a growing population, and changing consumption habits further exacerbate the problem. Demand for clean water is ever increasing – after all, almost 8 billion humans on this planet need water – yet water shortages and pollution are an all-too-common occurrence in today’s world. Given the critical importance a robust water supply will play in our future survival. There is clearly an urgent need for the public and private sectors to align and invest in water infrastructure.
Wave of Spending on Water Infrastructure Projects
The United States President Joe Biden signed a USD$1.1 trillion infrastructure bill on November 15th last year. The bipartisan bill turned law will allocate the funds directly to states with infrastructure projects over ten years. The bill devoted USD$55 billion to water and wastewater infrastructure projects, especially given that growing climate risk has put a strain on aging water infrastructure.
Publicly Traded Water Investments
Responsible investors who want to have a role in water stewardship can purchase water stocks. They comprise companies that generate revenue from water-related activities such as utilities, filtration and treatment, and equipment makers that manufacture pumps and pipes needed to transport water.
Investing in the Commodity
Alternatively, investors can bet on the future value of the Nasdaq Veles California Water Index (NQH2O). NQH2O Index is an established benchmark index for water prices that provides greater transparency, oversight, and price discovery for the water industry and its participants. These futures contracts trade on The Chicago Mercantile Exchange and track the water prices in California.
Water Exchange-Traded Funds in Canada
Exchange-traded funds also provide opportunities to invest in the water theme. Rather than navigate the complexities of picking individual securities, ETFs offer investors an easy and convenient way to gain exposure to several water-focused businesses through a single basket of stocks that trades on an Exchange.
The NEO ETF Screener identifies the iShares Global Water Index ETF (CWW) as the sole ETF investing in the 'Water’ theme. According to Trackinsight’s thematic taxonomy, the water theme belongs to the Natural trend, which captures the investment opportunity in any of the ‘Rising Urbanization’ and ‘Environmental Changes' megatrends.
iShares Global Water Index ETF (CWW)
The iShares Global Water Index ETF (CWW) is Canada’s first and only water ETF. Assets under management reached CAD$317 million while attracting CAD$18 million of investors' capital year-to-date. This fund is designed to track the performance of the S&P Global Water Index. CWW can help portfolio diversification, allowing investors to express their views on global water equities. It invests in 50 stocks covering the entire sector. They are selected based on the relative importance of the global water industry within their business models. This fund is likely to see support moving forward, having 51.97%of total assets invested in the U.S. It can be a beneficiary of the USD$55 billion that is set to be spent on water and wastewater infrastructure in the USD$1.1 trillion bill. Moreover, the fund is globally diversified, investing the remaining assets as follows: 20.24% in the United Kingdom, 6.92% in Switzerland, 4.97% in France, and 13.68% across six different countries. CWW costs 0.66% a year to own while following a distributing dividend policy where it distributes generated income to shareholders.
 Fund AUM and flow data is as of June 2nd.
 Fund holdings’ data is as of June 6th.
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