Does water earn a place in your portfolio?
February 02, 2023
6 minutes to read
Around 1.4 billion cubic kilometres. That is how much water is estimated to be on our planet. What’s more, that water doesn't get used up: every drop that evaporates or disappears into the soil finds its way back sooner or later. However, this is a more attractive area for investment than it may seem at first glance. Demographic and climate developments are continuing to move water up the economic and political agenda. As the population increases, so does the demand for water. In 1960 there were 3 billion people on this planet. There are now 8 billion of us. By 2050, there will be another almost 2 billion people. And by 2100 there could be over 11 billion of us according to UN projections.
A tap and a toilet for everyone
At the same time, the standard of living is improving in many regions. For example, in 2000 just 62% of the world’s population had access to safe drinking water in their own homes. This reached 74% by 2020. There’s also a lot going on in the smallest room in the house. In 2000, only 29% of the world’s population had access to their own toilet as a family. In 2020, the percentage stood at 54%. A world where everyone has easy access to clean drinking water and sanitation is coming closer, bit by bit. That’s great news. However, these positive developments do come with a few challenges.
Not overflowing with drinking water
The use of water for personal consumption, agriculture and industry has increased sixfold over the past 120 years . Pollution, climate change and deforestation have also put pressure on drinking water reserves. Even though there is an abundance of water – 70% of the planet is covered by oceans – only a small part is potable. For every 100 buckets of water on earth, only 1 bucket is suitable for drinking (another 2 buckets of drinking water are also locked up in glaciers and ice caps).
A versatile area for investment
Dealing with all these challenges – not least growing populations, increased water consumption and climate change – calls for much more money to be invested in this field. It has been estimated that an additional USD 22,500 billion of investment in water infrastructure will be required worldwide by 2050 . You can invest in water in different ways:
- Infrastructure: the construction and maintenance of networks, dams, water towers, industrial applications, irrigation, water management (drought control and flood protection), smart meters, etc.
- Water treatment: filtration and purification, desalination, quality monitoring, etc.
- More efficient use, leak detection and reduction of losses: 61 million cubic metres of drinking water are lost daily from leaking pipes in Flanders alone.
- Water suppliers: drinking water is a given, but there is also washing water, industrial water, irrigation water, cooling water, etc.
An investment area with risks?
Water is a basic product that everyone needs. Unlike oil, nothing can replace water. However, investing in water is not a purely defensive investment. Some sub-areas may themselves be very sensitive to economic fluctuations. For example, if the economy is in a slump, less water infrastructure will need to be built for new homes or new businesses. Other sub-topics are less sensitive to the economic climate. Crisis or not: everyone still wants drinking water from their tap that has been tested for cleanliness and quality. Water can therefore be an attractive investment because of the long-term outlook (population, standard of living, climate, etc.), albeit as an addition to a diversified portfolio.
How to invest in water
Unlike gold, oil or aluminium, water is not a commodity that is traded on the stock exchange. Investment in water can, for example, be made via individual shares, trackers (ETFs) or actively managed investment funds. Which of these three may be suitable depends, among other things, on your risk appetite, knowledge of the topic and how much time you wish to spend on your investments.
- Individual shares require the most homework. You select, buy, sell and monitor them yourself. On the one hand, this approach offers the highest potential return, but on the other hand it entails a higher risk of a significant loss, especially if you only invest in a few shares.
- Trackers or ETFs track an index – like a basket – of water-related shares. With a tracker, you can invest in dozens of water-related companies in one fell swoop. The disadvantage is that a tracker does not distinguish between "good" or "bad" companies, but tracks all the companies in the index.
- Investment funds also invest in a basket of water-related shares, but this is done more actively. This means there is a manager who makes a selection and tries to separate the wheat from the chaff. The disadvantage is that you pay a little more for this active management than for a tracker.
Looking for water-related trackers or funds?
- Log in to Keytradebank.be on your laptop or desktop
- Click on Advanced at the top, next to search by instrument name, symbol or ISIN
- Tick Tracker and/or Fund
- Search for the term water or aqua