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.