Water is a critical resource. Without it, life as we know it would perish. Along with being a crucial commodity, water can also be an excellent addition to your portfolio. If you are wondering why you should add it to your portfolio and how to invest in water, here’s what you need to know.
Why Water Belongs in Your Portfolio
While it may not seem like water is rare, as it covers about 71 percent of the Earth’s surface, the vast majority (coming in above 96 percent) of that is saltwater. That means, by comparison, very little of the planet’s water is drinkable without desalination, which is an expensive process on a large scale.
Plus, some of the freshwater, about 2 percent, isn’t readily available. Overall, only about 1 percent of the water is potentially ready for human consumption.
By investing in water, you can benefit from the potential scarcity. If water shortages occur, there is the possibility of significant gains. Otherwise, water isn’t likely to become less valuable, barring an unprecedented breakthrough. That means, as a worst-case scenario, water could give your portfolio a degree of stability, which may be ideal for more conservative investors.
How to Invest in Water
If you are trying to figure out how to invest in water, you have a few options. Each one has its own benefits and drawbacks. As a result, you should reflect on your needs, current portfolio mix, financial goals, and risk tolerance before you choose an approach. That way, you can align your investment with your preferences, ensuring you are making the right move for your financial future.
Here is a look at the potential opportunity to invest in water.
Some water utility companies are listed, allowing you to invest in them directly. American Water Works Co. is one such example, showing up with ticker symbol AWK. Aqua America (WTR) is another such option.
When you use this approach, you are buying stock in a single company. If you already have a diversified portfolio, this could allow you to invest in water while still mitigating your risk. However, if you aren’t diversified, investing in individual companies is the riskier approach, as you are essentially putting a lot of your proverbial eggs in one basket.
As with any investment, you’ll want to research the utility before you move forward. That way, you can make sure you understand its current state, allowing you to determine if it is the right option for you.
Bottled Water Companies
The bottled water market has been growing. By investing in companies that sell bottled water, you can add water to your portfolio, though in a somewhat indirect manner. Additionally, most bottled water sellers also have other beverages under their company umbrella, which may create a form of diversification, at least from the product offering standpoint.
Three of the biggest bottled water producers are the Coca-Cola Company, Nestle Group, and PepsiCo. By investing in one of the larger companies, you are technically investing in water, too.
Water Filtration and Purification Companies
Another somewhat indirect approach is to invest in water filtration companies. Like bottled water, many water filtration brands are owned by larger organizations, most of which are listed. For example, Clorox Co owns Brita. The PUR brand belongs to Helen of Troy Limited, while Everpure is part of the Pentair PLC range of products.
On the purification side, DowDuPont Inc is a big player. Mainly, the company works on nanofiltration and reverse osmosis tech, both of which can make water safer to drink. Another option in this niche is Siemens, which could also be an investment opportunity worth considering.
Water Index Funds and ETFs
There are a variety of index funds and ETFs that focus on water-related stocks. Usually, the fund holds stocks in a group of companies, though some may feature as little as two. Some of the options in this category include:
- Bloomberg World Water Index
- Dow Jones US Water Index
- First Trust Water ETF
- Invesco Water Resources ETF
- ISE-B&S Water Index
- MSCI World Water Index
- PowerShares Global Water Portfolio ETF
- S&P 1500 Water Utilities Index
- S&P Global Water Index
Even though index funds and ETFs come with a degree of diversification automatically, you still want to research the fund’s history. Not all of them are as successful as their counterparts, so it’s worth spending some time to explore its performance before you jump in and invest.
Water Mutual Funds
There are also mutual funds that focus on water. Again, these provide a degree of diversification automatically, though the amount of which varies from one fund to the next. Here are a few potential investment opportunities that fall in this category:
- AllainzGI Global Water Fund Class A
- Calvert Global Water Fund Class A
- Pax Global Environment Markets Fund Institutional Class
Broad Index Funds, Mutual Funds, and ETFs
Some broader index funds, mutual funds, and ETFs also have water-related stocks among their holdings. The difference with these is that they also feature a mix of other companies, potentially across numerous sectors.
The benefit of this approach is a higher degree of automatic diversification. Essentially, you are investing in small pieces of a wide range of companies when you purchase these funds, a move that could reduce your overall level of risk.
However, this also makes choosing an option more complex. Some funds feature dozens of companies, and it can take time to research every stock to see if the fund is right for you.
Additionally, you’ll need to track down a broader index fund, mutual fund, or ETF with a connection to a water-related company. When it comes to bottled water, that may not be a challenge. However, for utilities and other water-related stocks, that could require a bit more time to research.
Making the Water Investment
Once you know which water investments you’d like to make, you’ll need to purchase the right stock, index fund, or ETF. Usually, you’ll do this through a brokerage just as you would with every other stock. Just look up the investment and proceed with the purchase per the usual process.
If you don’t have a brokerage, you may want to explore one of the many online options. Many of them are easy to use and come with companion smartphone apps, allowing you to manage your portfolio from essentially anywhere.
Have you ever invested in water or another critical resource? Tell us about your experience in the comments below.
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