We are aware that life begins in water. But it can also be a way to diversify a portfolio. Water, like oil and gold, is a commodity that is in short supply right now. Through brokers that offer mutual funds, water indexes, and exchange-traded funds, investors can gain exposure to the commodity. As with any other scarcity, the lack of water also opens doors for investment.
The Most Important Takeaways
- Water is unquestionably the most important resource on Earth.
- Water shortages have the potential to disrupt social, political, and economic systems.
- Climate change, pollution, and rising demand are making water increasingly scarce.
- By purchasing investments and assets related to water, investors can diversify their portfolios due to its significance.
- Water-related securities can be accessed by retail investors through a variety of indexes, mutual funds, and exchange-traded funds (ETFs).
Understanding Investments in Water
The water investment case is straightforward: One of the most essential resources, water is likely to become significantly more scarce. Over 97% of the earth’s surface is covered in saltwater, while water covers 70% of the surface. Saltwater is unfit for drinking, crop irrigation, or the majority of industrial applications. Only about 1 percent of the remaining 3 percent of the world’s water resources is easily accessible for human consumption.
Worldwide water scarcity is a result of rapid industrialization and growing agricultural use. China, Egypt, India, Israel, Pakistan, Mexico, the majority of Africa, and the United States (Arizona, New Mexico, California, and West Texas, to name a few) have all experienced a lack of water.
Additionally, pollution emphasizes the need for clean water. The impact of fertilizer runoff can be seen in the dead zone off the Gulf Coast, and well water from California to Maryland contains methyl tertiary butyl ether (MTBE), an additive in unleaded gasoline. Agency for Environmental Protection. State MTBE Reports”
Extensive media coverage of incidents in Russia, China, and elsewhere demonstrate that pollution isn’t just a problem in the West. Naturally, the quantity of fresh water that can be used by humans is further restricted by clogged water supplies.
Water Investment Indexes
The following are some of the most well-known indexes that track a variety of water-related investment possibilities:
- About 29 stocks make up the Dow Jones U.S. Water Index; It is a barometer made up of numerous domestic and international businesses that are connected to the water industry and have a minimum market capitalization of $150 million.
- In December 2000, the ISE Clean Edge Water Index was launched. This index includes companies that specialize in water distribution, water filtration, flow technology, and other solutions related to water.
- There are 35 stocks in it.A subsector of the Standard & Poor’s 1500 Utilities Index is the S&P 1500 Water Utilities Index. Only American States Water (AWR) and Aqua America (WTR) are included in this index.
- The S&P Global Water Index, which debuted in 2001 and includes fifty businesses worldwide, Their businesses pertaining to water fall into two categories: water infrastructure, utilities, and water equipment and materials.
Another international perspective on the water industry is provided by the MSCI Global Sustainable Water Index. Sustainable water products and services account for at least half of the revenue of developed and emerging businesses included in the index. Additionally, a number of utility indexes include water stocks.
How Can You Make an Investment in Water as a Good?
California water prices are tied to tradeable water futures on the Chicago Mercantile Exchange. Investors can wager on the Nasdaq Veles California Water Index’s future value using these futures contracts, effectively betting on the price of water in the future.
In What Ways Does Michael Burry Invest in Water?
It is revealed at the conclusion of The Big Short that Scion Capital founder Michael Burry invested in water following his successful short trade. Burry explained in subsequent interviews that “food is the way to invest in water.” That is, cultivate food in water-rich regions and transport it to water-poor regions for sale. Farmland in areas with high precipitation is effectively a wager on the value of water in the future. However, it might be simpler for retail investors to concentrate on water stocks.
How Can Water Stocks Be Invested?
Water stocks will be loads of organizations whose business is intently attached to water system, utilities, water treatment, or other water-related ventures. A mutual fund or exchange-traded fund (ETF) with a high exposure to water stocks, individual company stocks, or both are viable options for making investments in these.
The Bottom Line
Demand for investments that make money from the need for clean, fresh water has increased in recent years. Investors can anticipate a slew of new investments that provide exposure to this valuable commodity and the companies that deliver it to the market if the trend continues.
There are currently a number of ways to increase your portfolio’s water exposure; The majority only require some research. There are numerous opportunities to invest in this scarce resource.
