“This story isn’t new,” says Hans Peter Portmann. In fact, it is as old as water itself.

Portmann, an affable Swiss with an encyclopedic knowledge of arcane industry statistics, is manager of the recently launched Pictet Global Water Fund. Manager of the $400 million PGSF Water Fund, based in Luxembourg and traded offshore, he is now trying to convince American investors that water is a business that is ripe for utility-industry mergers, privatizations, and growth led by technology-powered productivity gains. “Water is perceived of as a little bit defensive,” says Portmann. “But there is above-average growth hidden in this sector.”

The sector, by Portmann’s reckoning, includes water utilities, bottled water providers, waste management companies, and manufacturers of water purification and desalting systems and monitoring equipment. But while the industry’s defensive image certainly helped Portmann’s Luxembourg fund achieve a gain of about 20% in the year following its debut during the tech-stock rout in late 1999, more recent months have been less kind. As many investors fled equities of any kind, the fund turned in a 9.9% decline for 2001 . The U.S. fund, with only $1 million in assets, is too new to have a Nasdaq ticker symbol or a record.

But Portmann is undeterred. He insists the water industry’s fundamentals argue for a long-term recovery, and notes that while per capita water consumption in the U.S. has been static for the past 15 years, use in such areas as manufacturing and farming is surging. “One microchip needs 10,000 gallons of pure water,” he says. “Growing one orange requires 13 gallons–and 70% of world water use is for agriculture.”

Portmann’s portfolio of some 50 companies is currently split about equally between equipment makers and utilities, with a spritz of bottled water makers, principally France’s Danone. No matter what the company, Portmann looks for one overriding characteristic. “What I care about,” he says, “is free-cash-flow generation.” Among his current favorites are Zenon, a micro-cap Canadian maker of membrane filtration equipment, and Aguas de Barcelona, a Spanish water utility whose shares, perhaps because of concerns over the company’s Argentine holdings, are trading at a “ridiculous” low multiple of less than one times sales. But Portmann is shying away from such huge water-industry players as Suez (“it’s not a constant free-cash-flow generator”) and Vivendi (“it’s getting interesting, but it’s too soon for me to budge”).

He is also cautious on U.S. water utilities, arguing that with industry takeovers on the rise, “a consolidation premium is built in” to many companies’ stock price. Still, he sees a bright future for private takeovers of municipal water systems. “There are 56,000 different entities providing water services to U.S. citizens alone,” he estimates. “That is not cost-efficient. Municipalities will have a strong incentive to outsource.”

More information on Pictet Global Water Fund is available at 877-470-0103. Pictet says it is currently capping the expense ratio for the fund at 1.30% for institutional-class shares and 1.55% for retail shares.