8/31/2012 2:14 PM ET|
Water: Good as gold for investors
The world's most critical commodity is getting harder to find, which makes it an attractive investment. Here are 10 ways to play it.
It's the global commodity that most deserves a place in your portfolio -- ahead of gold, iron ore, copper or oil, I'd argue.
And it's also the toughest to invest in. Water isn't traded -- in fact, in many countries it's not even metered. Pure-play water companies are hard to find, especially if you rule out the obvious but slow-growing water utilities. The leading companies in big swaths of the market are industrial conglomerates in which water has historically made up a relatively small share of revenues.
For example, among the top 10 companies in the Guggenheim S&P Global Water (CGW) exchange-traded fund, which is designed to track the Standard & Poor's Global Water Index, I'd call five of them water utilities and two diversified industrial companies with a presence in water. That leaves only three, or about 30% of the ETF and index, anywhere near the sweet spot in water. (More about what the sweet spots are later in this column.)
But this is changing.
As the individual parts of the water market get bigger, investors are seeing a wider array of pure plays. For example, orders for desalination equipment to convert seawater into water for drinking and industrial processing hit $5 billion in 2011, according to Global Water Intelligence. Those orders are forecast to hit a record $17 billion in 2016.
And it doesn't hurt that both companies and investors see water bucking the trend of other environmental sectors. As of Aug. 29, the Guggenheim S&P Global Water ETF was up 8.85% from last year, versus a brutal 38.53% drop for the PowerShares WilderHill Clean Energy (PBW) ETF.
A resource you can't live without
You can put together the investment case for water from the headlines.
Supply is falling. Droughts devastate -- depending on the year -- the United States, Australia, India, China and Argentina. Evidence mounts that the global climate is becoming more volatile, putting historic water-carrying weather patterns such as India's monsoon season at risk. Supplies of clean water shrink as underground aquifers are mined for limited supplies of water accumulated over millions of years. Clean water supplies also dwindle as existing sources are polluted by farm chemicals, inadequately treated industrial discharge and untreated urban sewage.
Amid all this, demand is rising. According to data from the United Nations, withdrawals of fresh water have tripled in the last 50 years, with demand for fresh water increasing by 64 billion cubic meters (64 trillion liters, or 16.9 trillion gallons) a year. Some of that is from global population growth of about 80 million people a year, at current rates. Some is from changes in lifestyles and eating habits that increase per-capita water consumption. And some is from soaring demand for clean water from farmers, industry and city dwellers. Add in increases in energy production (because tapping sources such as oil sands and biofuels requires more water than extracting from traditional sources of oil and natural gas).
The math is pretty simple: Falling supply and rising demand will drive the price of the commodity higher. Want to know where to invest in water? Follow the flow. In this column, it takes me to 10 water stocks in three categories.
1. Global water utilities
Rising prices for water will produce gains for global water utilities, even if those returns are capped by regulators at a specific return on invested capital. The best bet here is on water utilities that are building out infrastructure in places where water demand is rising most rapidly and new investment represents a large percentage increase over existing investment.
If that sounds like a prescription for investing in water utilities in developing economies, it is.
For example, Manila Water (trading in Manila as MWC.PM), which already supplies water for half the Philippine capital, has recently bought a 47% stake of Vietnamese water distributor Kenh Dong Water Supply and 49% of treatment-plant operator Thu Duc Water. The stock is up 43.86% in the last year.
Or Guangdong Investment (GGDVY), which supplies Hong Kong's water (and is up 33.97% in the last year). Or Companhia de Saneamento Basico do Estado de São Paulo (SBS), which collects, treats and supplies water in Brazil's São Paulo state (and is up 60.62% in the last year).
Stocks mentioned in this article include Xylem (XYL).
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The Great Lakes of America comprise about 21% or more of the World's fresh water.
States such as Texas, and the expanse of desert states, including Nevada, and California would love to get their hands on this abundant supply. A water pipeline? Why not?
No, sorry. The Great Lakes Compact enacted by the states of the Midwest surrounding lakes prescribe
for exact territorial management of this abundant and precious supply of water. The waters of the Great Lakes will not likely be leaving the Midwest, anymore than the Packers will be leaving Green Bay, Wisconsin
Why do you think GE is building desalination plants?
(which won't be enough)
Rising temperatures are killing off the oxygen levels necessary to keep fresh water healthy and drinkable. Invasive species, like the zebra mussel, are destroying habitats necessary to preserve the environments necessary for fresh water. We are seeing fish die-offs in the tens of millions in the very same bodies of water we are getting our drinking water from. Anybody see a problem? The huge aquifiers critical to both farming and households are being sucked dry at unsustainable and exponetial rates. However, if there was a problem with water scarcity then why hasn't anybody done anything about it? Obviously, there isn't a problem with fracking our water supply. So what is the big deal?
Me, personally, I am drinking all the nice cold clean water I can while I still can. Making as much ice as I can and all that ice tea. Oh, and washing my car everyday. Yeah, just doing my part.
If the Govt tells us there is a water problem, be sure in a few years there will be one. There will be mandated restrictions and taxes. Yes, lots of taxes. Of course there will be free water for the poor voting public. The rich will always have water. The squeeze will be on whats left of the middle class. Most water will be polluted. Whats left will be expensive. :ook to American Plains history. People kiled for water. Look at the Mighty Colorado river. By the time it gets to the ocean there's nothing left.
The bright side will be we can trade water for oil. Remember when we traded wheat for gold????
desalinization plants I suppose need to increase their output and work on their technology. Many people around the world are living off these plants , especially some Middle Eastern countries. Obviously transporting enough of it for irrigation purposes and many other uses is impractical and this is where water treatment plants for irrigation and other uses not fit for drinking but for other uses is needed. This country needs a water plan just as it needs a coherant and practical energy policy. Just one more area where people could be put to work if the congress would get it's act together and just do the job they were hired to do. I believe until every incumbant and I mean every one reguardless of party needs to be voted out and new fresh blood brought in and start over again with a new bunch that do what they are hired to do. We the people can make this happen and whatever we allow them to do is our fault because we can vote them out. No matter how much money they have. In fact any politician that spends more than X amount of money on their campaign for reelection should automatically be voted out because they have spent to much time fund raising and not working or perhaps if they take more than X $$$ from 1 source they disqualify themselves.We are the ones that need to get our act together and just vote them out until they get the message we are fed up with the politics and nothing happening for us and the in this system how have the 99% allowed the 1% to take over everything? This mess is as much due our own apathy and self centered self indulgent instant gratification consumer gotta go into debt for everything and allow ourselves to be in the position to be exploited as anything. My fellow Americans we the people can fix this if we stop argueing over petty issues until the big ones are fixed and then we can focus on smaller issues that don't affect whether people work or get fed or educated. Finally I know this idea has as much a chance of happening as the 435 in congress getting it together. How did we go from 1940 where everyone worked towards a common goal to this in just 70 years and 3-4 generations.
Anyway the water issue in this country is fixable just like everything else if we work together.
So does this mean if I have a water well on my property, it will soon be illegal because I am not buying that water? If someone pays to bore a hole in the ground on their own property, paids for the pump and pays for the electricity each month to have that pump pump the water, it will be illegal. Don't buy it. Not here in the South where water is still free if you have a hand pump like my friend has or your pump has a solar source for electricity.
Occasionally will buy bottled water, but with your own well and the new type of water filtration in stores, why buy water anymore.
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