Your Investments: Water - it's just not for drinking

The need to increase access to clean water around the world has led some to call water the “oil” of this century.

By AARON KATSMAN
June 29, 2011 22:48
3 minute read.
water crisis

water crisis. (photo credit: REUTERS)

 
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As the oppressive heat of summer is upon us, we are constantly reminded of our need for water. We walk around with water bottles, force our kids to drink at every break in their game of tag and run through the sprinkler to cool off. In a nutshell, we need water.

WATER AS AN INVESTMENT

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As abundant as it appears to be, only about 20 percent of the global population has access to running water. Additionally, only one-third of the world’s population has access to clean water. Many estimate that in 40 years, more than four billion people, half the world’s population, are expected to live in areas that are chronically short of water.

Moreover, economic development has placed greater pressure than ever on the supply of fresh water. In 1900, the global annual water use per capita was 350 cubic meters. In 2000, that number had grown to 642 cubic meters.

In the United States alone, the demand for water has tripled in the past 30 years, while the population has grown by just 50%.

CHINA, AFRICA AND THE US

The need to increase access to clean water around the world has led some to call water the “oil” of this century. As the world becomes more and more developed, wealthy countries will not only be able to afford, but also will have a moral obligation to provide this basic necessity to their citizens.

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China and India, which are experiencing economic booms right now, are therefore investing hundreds of billions of dollars in improvements to their water infrastructure, while many sub-Saharan African countries that are beginning to show signs of economic growth will soon need to begin to provide the basics to their public.

In all three of these examples, these are huge populations that are in their infancy when it comes to the basic needs of their citizens. They have been steeped in poverty for decades, and only now are they emerging. As such, they need to start from scratch, which means access to water and building roads.

Regarding the US, the Environmental Protection Agency estimates that up to $1 trillion will have to be spent on upgrading water infrastructure over the next few years. The country’s aging infrastructure, much of which is more than 100 years old and has long exceeded its useful life, is in a state of utter disrepair.

The network of drinking water pipes in the US extends more than 700,000 miles – more than four times the length of the national highway system. This all adds up to the need for new reservoirs, better water canals and more efficient irrigation systems. And Israel is a world leader in the necessary technology for making such repairs.

HOW TO INVEST WISELY

There are three ways to try and profit from the global water problem: • Private investment: For investors who have very large sums of money, investing directly in companies that are working on water technologies is an option. There is no shortage of Israeli companies looking for investment capital.

Keep in mind that investing in private companies comes with high risk and high reward.

• Individual stocks: For the majority of investors, investing in private companies comes with one prohibitive barrier of entry: the huge amount of money needed to invest. For those who don’t have a spare million, individual stocks that trade in public markets is an option.

There are plenty of publicly traded companies that work in the water industry.

• Exchange traded funds (ETFs): Investors looking for more diversification without having to pick water stocks can buy one of the water ETFs that trade on the stock exchange. Here you get a basket of stocks that are focused on the water industry, and instead of buying one or two companies, you get a fund that is investing in many more shares, thus helping diversify your holdings.

GET THE RIGHT ADVICE

In light of the above, improving the water infrastructure is set to be a popular investment theme for many years to come. To consider whether investing in water would be right for you, speak with your financial adviser to see if there is room in your portfolio to invest in water.

aaron@lighthousecapital.co.il Aaron Katsman is a licensed financial adviser in Israel and the United States who helps people with US investment accounts.

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