Energy and Capital put up some grim statistics a while back.
- The world uses 2.1 trillion cubic meters of water every year. That's 17.5 million gallons of water every second. To put that in perspective, we use 41,000 gallons of oil every second.
- We only have enough fresh water capacity to support about half of world demand.
- Nearly 25% of the world's population lack adequate water for drinking and sanitation.
- 20% more water than is now available will be needed to feed the additional 3 billion people who will be alive by 2025.
Demand is simply already severely outpacing supply, which will drive up prices and foster good returns from water investments.
Consequently, water investment opportunities will surely abound. Investors abroad look at water-focused mutual funds, such as Calvert Global Water Fund, and water ETFs, such as PowerShares Water Resources Portfolio, First Trust ISE Water Index Fund and Guggenheim S&P Global Water ETF.
According to Kenneth Lamont, passive funds research analyst for Morningstar Europe, the main investment thesis underlying an investment in global water equities revolves around the scarcity of fresh water as a commodity. Over the recent years, demand for fresh water has increased at more than twice the rate of global population growth, leading to dramatic predictions of future shortfalls between supply and demand. Additionally, fresh water resources are not evenly distributed across the globe, with even highly developed regions such as California, not immune to crippling shortages. This environment is likely to provide an increasing number of opportunities for companies involved in the treatment and distribution of water globally.
Lamont believes that one of the key attractions of ETFs is that they can provide transparent, low-cost equity sector exposure. He cites the most popular ETF tracking the water equity segment, in terms of assets under management, as the iShares Global Water ETF – which physically replicates the S&P global water index – meaning that it physically holds all 50 stocks as per the index – and charges a management fee of 0.65%.
The Lyxor World Water ETF charges a slightly lower management fee of 0.60% and offers a narrower exposure of 20 companies.
Lamont is of the view that water could prove the most profitable commodity investment as demand for fresh water has increased at more than twice the rate of global population growth.
