The water industry, perhaps more than any other, is primed for long-term growth on a global scale and presents big advantages for active investors. Here are five reasons to consider going active.
1. The only fund that seeks to generate alpha by actively investing in the water industry.
In the world’s most vital industry there is only one mutual fund that takes an active approach to investing in it—AllianzGI Global Water Fund. Given water’s quickly shifting supply/demand dynamics, need for innovation and changing regulatory environment, only an actively managed fund can stay on top of it all. At the same time, we conduct the bottom-up research necessary to find companies that can deliver on both water sustainability and long-term investment performance.
Unlike many other funds that specialize in the sector, the investments made by AllianzGI Global Water Fund are driven by research-based decision making. This brings tremendous insight to the highly fragmented water industry, where there are more than 53,000 service providers in the US alone. It’s an industry that’s primed to scale up, leading to heighted M&A activity in the water sector, where deals exceeded $20 billion globally in 2016, according to Bluefield Research.
The water investments we ultimately make are based on the merits of the individual companies themselves. We build a concentrated portfolio of 30 to 40 names that we believe are the strongest investment prospects in the global water industry.
2. Passively managed water funds ‘don’t hold water.’
AllianzGI Global Water Fund is considered a pure water play compared to its passively managed peers. We focus primarily on companies capable of developing solutions to this planet’s most pressing problem: growing water scarcity. The companies we invest in do one or more of the following:
- Increase the supply of fresh, clean water
- Enable efficient use of water
- Improve the quality of drinking water
Why passively managed water funds may not meet investor criteria:
- Major water indices include names such as Coca-Cola and General Electric*—responsible industrial consumers of water, but companies that provide little in the way of solutions to water scarcity.
- The inclusion of nonwater-related companies means water issues have less impact on overall investment performance.
- Likelihood of investment duplication as many investors are already exposed to these names in funds that track broad market indices such as the S&P 500 or MSCI ACWI.
- Many water indices are capitalization weighted, which means nonwater-related companies can have an outsize impact on performance.
- The end result is an unwittingly high concentration in same names with relatively limited exposure to water.
3. ESG informs every investment decision that drives the Fund.
As an integral part of our active investment process, AllianzGI Global Water Fund builds an ESG case for each company under consideration. Other than focusing on businesses that meet ESG standards in the services and products they offer, we also seek companies that exhibit ESG values in their general operations. To ensure this, we both engage and encourage full transparency of ESG metrics while pushing the development of better solutions for water scarcity.
Our ESG focus is augmented by the Allianz Global ESG team, which was established in 2000 and has been a world-class innovator in putting socially responsible principles into practice ever since. The team conducts proprietary investment research and assigns ESG rankings to over 3,000 companies. This research has been indispensable in pointing out those companies managed with the highest standards of social responsibility.
4. Constantly seeking sustainable solutions for water scarcity.
If economics is best defined as “the allocation of scarce resources among unlimited needs,” then perhaps the most perfect example of this is water. Dwindling supplies and exponential growth in demand are going to present economic challenges, as well as new investment opportunities far into the future.
With a global population approaching 10 billion by 2050 according to the United Nations, and only 1% of the earth’s water fit for human consumption, water scarcity is fast-becoming the world’s most important concern. It’s also at the center of every investment decision we make as only companies that can develop solutions for scarcity are considered appropriate for the portfolio. Here again, we offer a distinct difference from passively managed water funds, which often include holdings that are affected by a much wider range of economic issues unrelated to water.
5. Ready to ride a new wave of water infrastructure.
Water infrastructure is in need of capital expenditure and modernization everywhere in the world. In the US, it outpaces roads, airports and schools combined to be the nation’s single biggest infrastructure need. The extent of the problem is best illustrated by the country’s vast system of underground water pipes, some of which have been operating for more than 100 years and leak an estimated 6 billion gallons of fresh water every single day.
The deterioration has only accelerated in the wake of the financial crisis, when infrastructure spending was often the first item cut from municipal budgets. President Donald Trump has proposed upwards of $1 trillion in new US infrastructure spending and it’s an area where he and some of his staunchest political opponents can find common ground. While the passage of an infrastructure spending bill is anything but certain, the growing demand for more and better water infrastructure is something investors can count on. It’s in this environment that AllianzGI Global Water Fund’s actively managed approach is poised to deliver strong investment performance while helping to develop sustainable solutions to water scarcity.
Read more from Allianz Global Investors.
Andreas Fruschki, CFA, Lead Portfolio Manager, Analyst, Director of Equity Research – Europe [email protected]
Fruschki is an analyst, a lead portfolio manager and Director of Equity Research – Europe with Allianz Global Investors, which he joined in 2005. He is the research head for European equities, and also maintains his coverage of European industrial companies engaged in water-related industries and clean technology. Fruschki has 12 years of investment-industry experience. He previously held various legal positions in Berlin and also worked as a consultant in the corporate-finance practice at PriceWaterhouseCoopers in Hamburg, Germany. Fruschki has an MBA, focused on investment management, from the University of Western Sydney. He also has a law degree from Humboldt University, Berlin, and passed his judicial bar exam in 2004. Fruschki is a CFA charterholder.
Investors should consider the investment objectives, risks, charges and expenses of the fund carefully before investing. This and other information is contained in the fund’s prospectus and summary prospectus, which may be obtained by visiting us.allianzgi.com and should be read carefully before investing.
A Word About Risk: Investing in a limited number of issuers or sectors may increase risk and volatility. Investing in the water-related resource sector may be significantly impacted by events relating to international political and economic developments, water conservation, the success of exploration projects, commodity prices and tax and other government regulations. Foreign markets may be more volatile, less liquid, less transparent and subject to less oversight, and values may fluctuate with currency exchange rates; these risks may be greater in emerging markets. Derivative prices depend on the performance of an underlying asset; derivatives carry market, credit and liquidity risk.
The S&P 500 Index is an unmanaged market index generally considered representative of the stock market as a whole. The Index focuses on the large-cap segment of the U.S. equities market. The MSCI ACWI is a free float adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. It is not possible to invest directly in an index.
The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation. Funds are distributed by Allianz Global Investors Distributors LLC. Funds are distributed by Allianz Global Investors Distributors LLC. · 282053