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May 18, 2015 at 01:24 AM
California move to require further water-use restrictions highlights both a problem and an investment opportunity. In parts of the U.S. and other countries, water supplies are tight.
It’s not just a supply question, though: Deteriorating infrastructures, such as leaky municipal pipes, and increased demand compound the problem.
Those conditions create domestic and global investment opportunities that range from the acquisition of water rights to desalinization technologies, experts say.
The premise of investing in water is fairly simple, according to Matt Sheldon, CFA, co-manager of the Calvert Global Water Fund (CFWAX) in Dublin, Ireland. A significant amount of money will be spent in the water space over the coming decades, he says, and that spending will “act as a very nice tail wind for the companies that are providing solutions in it.”
He cites two primary reasons for the high spending levels. The water infrastructure in many areas is breaking down at an increasing rate and must be repaired quickly.
Widespread droughts are the second impetus – namely the need for “clean, local, fresh water (that) has essentially been already has been used up globally,” Sheldon explains.
Statistics support that contention. Guggenheim Investments, sponsors of the Guggenheim S&P Global Water Index ETF (CGW), notes that the global water supply is limited: 97.5% is salt water vs. 2.5% fresh water.
Seventy percent of the freshwater is frozen in the polar ice caps with just 30% available for consumption. By 2030, roughly half the world’s population–primarily in underdeveloped countries–will be living in areas of “high water stress.”
Active Management
The actively managed Calvert Global Water Fund divides water-related stocks into three main categories: infrastructure, technology and utilities. That approach provides a diversified mix of geographies, business drivers and models, Sheldon says.
The fund invests in publicly traded companies within these categories but does have some exposure to water rights-ownership businesses. The water rights model differs from the other categories, he notes.
“It’s a different investment proposition because generally you can own these assets for a long time before they are monetized …,” Sheldon explains. “But, generally, we don’t spend a lot of time in water rights, because there are not a lot of opportunities; and it is very transaction oriented.”
