August 04, 2008
Investing in Water: Bringing Water to the Sea
by Anne Moore Odell
Whether you wade into investing in water or dive in head first, the water industry offers investors
Water--so important for life that you don't think about it until its not there. Yet for many parts
of the world, securing clean drinking water is a serious problem. Population growth and water usage
are already straining current water supplies. The United Nations estimates that in the near future
two-thirds of all countries will be "water stressed" with 1.8 billion people suffering from
"absolute water scarcity." In developing countries, the lack of clean water and inadequate
sanitation is the leading cause of child mortality, reports the UN.
Only around three percent of the water on
earth is fresh water. However, fresh water supplies are being destroyed at an alarming rate as
surface water supplies are polluted and groundwater supplies, which make up 99% of available
freshwater, are mined beyond their natural rate of replenishment. Global climate change further
exacerbates the supply issue as climatic changes disrupt weather patterns causing drought and
The questions poised by the growing demands for water is one that local
municipalities, states, and national governments are going to have to answer. As one of the
necessities of life, no one should be denied water. In 2000, the UN adopted the Millennium
Development Goals, a collection of poverty alleviation benchmarks, which estimates that by 2015 $24
billion needs to be spent on drinking water systems and $142 billion on sanitation technologies
globally. Reports released in 2007 by the US Environmental Protection Agency, the Government
Accountability Office, and the Water Infrastructure Network show a shortfall of between $300
billion and $500 billion between funding and need over the next 20 years.
responsible and green investors, investing in water can support a double bottom line of earning
returns while supporting the environment and communities. A number of indices, accompanying ETFs,
and mutual funds follow global water companies. These include the Claymore S&P Global Water Index
ETF, Dow Jones US Water Index, ISE-B&S Water Index, Janney Global Water Index, New Kinetics Water
Infrastructure Fund, Praetor Global Water Fund, Powershares Water Resources ETF, Palisades Water
Index, and S&P Water Index.
"Water is the ultimate 'green' investment," said William S.
Brennan, President & Managing Partner for Aqua Terra Asset Management and Portfolio Manager of the
Kinetics Water Infrastructure Fund. "As the most essential life-sustaining substance and the most
critical input to economies around the globe, water is the only commodity that has absolutely no
substitute at any price."
Aqua Terra Asset Management is a registered investment advisor
that specializes in investing in global securities of water and water-related businesses.
Established in 2006, the firm has a deep domain expertise in the global water industry and focuses
on capital appreciation while employing an emphasis on preservation and risk management to limit
portfolio exposure to market downturns and volatility.
The demand for water is leading
some to compare water to oil. Yet the comparison between oil and water only can be stretched so
far. Life needs water to live; life doesn't need oil to survive.
Christian W. Magoon,
President and Senior Managing Director of Claymore Securities, told SocialFunds.com, "Water is
the only commodity for which there is no replacement. Can we replace oil? Yes. Oil we can replace.
Same with lumber or soybeans. There is only so much water on earth, but the demand for water itself
is not affected by inflation or tax rates," Magoon said.
"Water is not the new oil yet
because oil is priced as a commodity while water still experiences inefficient pricing relative to
the cost of treatment and transporting it to the point if use," Aqua Terra's Brennan said.
Brennan continued, "but when one looks at the appreciation of water rights from $2000 an acre
to $30,000 an acre in the last 36 months, the price of water in various situations is surging. The
cost of a gallon of bottled water vs. the price of a gallon of oil is still 50% higher when put in
the terms of what consumers pay for a 16oz bottle water product from Pepsi or Coca Cola."
Water companies span a wide range of sectors and industries including infrastructure, utility,
clean water production, efficiency, filtration, purification, monitoring, waste water treatment and
pollution control. Sectors that can have a significant impact on water include chemical, steel,
manufacturing, and agriculture.
The Claymore S&P Global Water Index ETF has a global
investment theme, giving investors assess to 65 different stocks in pure play water companies
across ten countries. The ETF reflects the index's diversification between companies that focus on
the material side of water production and companies that focus on the utilities and infrastructure
Top fund holdings as of the end of August 2008 in the Claymore S&P Global Water
Index ETF include Veolia Environnement (7.59 %), ITT Industries inc (6.67 %), Geberit (6.53 %),
Danaher Corp. (6.38 %), Kurita Water Industries (6.08 %), Nalco Holding (5.49 %), United Utilities
Group (5.31 %), and Itron (4.68 %).
While new technologies around water are being actively
explored, Brennan cautions more than a good idea is needed for investors to make money: "While
focusing on technologies, one must consider management's ability to commercialize it, open doors to
customers, and the right strategies to convince the end user to adopt and scale a new technology.
This requires a very specific, experienced management team.
Aqua Terra's team is looking
at desalination, smart meters, nanotechnology, improved membranes and filters, and pipe
rehabilitation in the form of "trenchless" replacement and "gray" pipes as new areas of growth in
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