That investment in water is one of the safest and most profitable that exist in the long term is one of the most repeated mantras in recent years. Michael Burry, who made the famous film The Big Short, has been investing his personal fortune in this raw material for some time, a commodity that, as he himself explains, “will never cease to be in demand and has no possible substitute”.
Global warming and the scarcity of this good have become a problem in countries like India, where its 1.3 billion inhabitants only have access to 4% of the world’s water resources and farmers consume almost 90% of the available groundwater. . But the famine is not exclusive to the Asian country. The scarcity of agricultural irrigation water in some areas of the US has led to the creation of a future for the raw material to improve the management of its use rights.
“Water is one of the raw materials with the greatest projection, but there is a growing gap between its demand and its supply, at the same time that there are increasing fears for its quality and for the stability of the water infrastructure,” BNP Paribas points out. , which manages the BNP Paribas Aqua fund. This is due to increased urbanization and advanced living standards, old or precarious infrastructure, a higher incidence of droughts and floods, and tightening regulation.
BNP Paribas: “Water is one of the most promising raw materials, but there is a growing gap between demand and supply”
Estimates of investment required in infrastructure at a global level range from 6.7 billion in 2030 to 22.6 billion in 2050. “As an example, we have the recent drought in Madras (India) where they have had to take trains for the supply of water to the population. In the USA, Pennsylvania has announced an investment of 136,000 million dollars to improve water infrastructure. All this means that the theme of water is a present and future investment opportunity. Thanks to its dynamism and rapidly developing, the water sector provides access to companies that offer higher earnings growth than global equities, and opportunities include more and more innovative solutions due to technological advances.”
From Pictet AM, Cédric Lecamp, who manages one of the largest water funds on the market, explains how “more than half of the world’s population lives in areas with water stress and the availability for 2050 compared to 1961-1990 is going to be at least 20% lower. 2,300 million people still do not have access to basic sanitation and 4,500 million to safe sanitation” and, linked to the Indian President Narendra Modi’s project to bring clean water to all homes in the country, they consider “remarkable the depletion of resources groundwater sources, especially in Northwest India”.
The potential of the sector is clear when analyzing data such as “of the 15.9 billion dollars expected in infrastructure for 2005-2030 in Asia and Oceania, water accounts for 57%”, he indicates. Companies in the sector will benefit from this great need for water-related infrastructure. “A large part of these infrastructures belong to municipalities: in 2015, 85% of the world population received water supply from them and 15% from joint public-private companies. But public administrations cannot reduce these imbalances and by 2030 it is estimated that 22% of the population receives supply from joint ventures”, they point out from Pictet, which indicates that listed companies in the water sector will have work, and business, to do in the coming years.
For Dieter Küffer, CFA and Senior Portfolio Manager at RobecoSAM Sustainable Water Equities, “Long-term drivers such as population growth, a growing global middle class, urbanization, water pollution, aging infrastructure and climate change, are intact,” he says. “And these trends are expected to create growth opportunities in the water value chain,” he adds.
The global demand for water for industrial and agricultural use is estimated to increase between 60% and 80% by 2025
“Water use has increased at rates of 1% per year since 1980 driven by population growth, socioeconomic development and changing consumption patterns. In addition, the global demand for water for industrial and agricultural use is estimated to increase between 60% and 80% by the year 2025. It should also be taken into account that water treatment systems should be gaining traction As data, Spain recycles only 19% of the water that falls down the drain, Israel, a 86%”, highlights Íñigo Colomo, manager of the Mediterranean Fund and CIO of March AM.
how to invest
But after hearing the benefits of this investment theme, the next question that investors immediately ask themselves is how to do it? Water began trading last December on the commodity futures market due to the scarcity of this good, through futures contracts whose price fluctuates like oil, gold or wheat do.
The Nasdaq Veles California Water Index is based on a gauge of California water futures prices that trade around $536 per acre-foot, a volume measure commonly used in the US equal to 1,233 cubic meters. As reported by CME Group, these contracts allow for better risk management associated with water scarcity and a better correlation between supply and demand in the markets. They do not require physical delivery of water and are purely financial, based on the average weekly price of water management rights among the five major California watersheds through 2022.
One way to invest in water is through exchange-traded funds (ETFs) made up of the main companies in the water sector. Some of these indices are the S&P Global Water Index, created in 2001 and made up of 50 companies from around the world related to water, or the World Water Index, made up of the 20 main companies that obtain most of their income from water supply. water, water infrastructure or water treatment and purification.
Another way is to do it directly with these companies, such as American Water Works, Aqua America or American States Water in the US or Sever Trent, United Utilities, Pennon Group or Suez in Europe. “There are 300,000 companies related to water, in highly fragmented markets with a tendency towards consolidation, whose representation on the stock market is around 850 companies”, they explain from Pictet.
Among the ten largest listed companies in the sector by market capitalization, only one, Suez, receives a sell recommendation from the hands of the market consensus collected by FactSet. Four of them have a hold recommendation. And the remaining six – Veolia, Guangdong Investment, Essential Utilities, Pennon, Evoqua and Athens Water Supply and Sewarage – are a buy opportunity.
“To reflect the reality of these industries as defined by Global Water Intelligence London, the universe is reduced to 300 in which a minimum of two-thirds of the assets are related to the topic, which add up to a capitalization of some 31.5 billion dollars” , point out from the Swiss manager.
Invest via funds
Those who are interested in diversifying part of their portfolio to this theme have several funds available for sale in Spain. There are 11 vehicles according to Morningstar: Allianz Global Water, BNP Paribas Acqua, Fidelity Sustainable Water and Waste, JSS Sust Eq Green Planet, KBI Water, March International Mediterranean, Pictet Water, RobecoSAM Sustainable Water, Thematics Water and Variopartner Tareno GlbWaterSolu. Of these 11, six of them have been running for at least 5 years, a period in which, on average, they have left high returns to their participants, around 11% annualized on average.
The most profitable has been the RobecoSAM Sustainable Water, with 13.58%% annualized in the last five years, and 41% annualized in the last 12 years, with data as of March 11. It is followed by BNP Paribas Acqua, which offers an annualized 12.5% in the last five years.
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