Water ETFs | Investment opportunities in the water sector

Dec 5th, 2011 | By | Category: Commodities

Water ETFs to benefit from rising demand and supply constraints

Global demand for fresh water is already outstripping supply and yet, as the world’s population increases, this demand is only going to grow. In emerging markets, the demand for fresh water for drinking, agriculture and industry is set to accelerate dramatically.

Water ETFs: Investment opportunities in the water sector

Water ETFs: Investment opportunities in the water sector.

Population growth means you don’t just need more water for drinking, but also for producing food. Moreover, as populations get richer and more urbanised (70% of the earth’s population forecast to live in urban areas by 2050) they tend to use more water and eat more water-intensive food.

The trend towards urbanisation will have a huge effect on water demand. Staple urban institutions, such as hospitals, restaurants and hotels, consume copious quantities of water.

Research from Citigroup suggests that, as urban areas increase in size and become more wealthy, a mix of changing diets and sanitation needs could cause demand for water to increase fivefold beyond the basic water requirement. That translates into a forecast that global water demand will increase by over one-third between 2000 and 2050.

And the demand for water isn’t just being driven by people eating, drinking and washing. As conventional energy deposits run out, we are turning to harder-to-reach oil and gas sources. Extracting gas from shale rock via techniques such a fracking, for example, is massively water intensive.

Ailing infrastructures and polluted waters should ultimately boost water ETFs

This increasing demand is already putting extreme pressure on legacy infrastructure, which requires massive maintenance and capital investment. Water pipes typically last between 50 and 100 years, and yet in many developed countries urban pipe networks were laid at the beginning of the last century and have never been replaced.


PowerShares NASDAQ OMX Global Water ETF

ETFX S-Network Global Water ETF

iShares S&P Global Water ETF

Lyxor World Water ETF

Conservative estimates suggest that between 1% and 2% of infrastructure needs replacing every year. The US has fallen substantially behind on investment and must spend about $335 billion by 2026 to maintain access to supplies of drinking water.

Then there’s the problem of polluted water supplies. In places such as China, which has approximately a quarter of the world’s population, analysts say that up to 90% of the fresh water has been contaminated by industry. Some is so badly affected that it can no longer be purified using existing technologies. Even in America, more than 40% of rivers and lakes are considered to be dangerously affected by pollution.

Water sector ETFs set for strong growth

All these problems create huge opportunities for companies operating in the water sector. Indeed, the industry, already worth approximate $500bn a year globally, is set to grow at between 4% and 6% over the next year, despite sluggishness in the world economy. In fact, governments are looking at infrastructure projects as a way of stimulating growth.

The global water market could be worth $800 billion by 2035, with Asia making up half that value as rapid economic growth and a rising population boosts demand, according to the president and chief executive of Finnish chemicals firm Kemira. Some experts foresee the water market hitting $1 trillion by as early as 2020.

All this makes water ETFs a highly compelling investment story for the long term.

Water ETFs:

PowerShares NASDAQ OMX Global Water ETF (Invesco)
The PowerShares Palisades Global Water ETF tracks the NASDAQ OMX Global Water Index. The NASDAQ OMX Global Water Index seeks to deliver capital appreciation and comprises of a broadly diversified segment of securities investing in water and water-related activities.

ETFX S-Network Global Water ETF (ETF Securities)
The ETFX S-Network Global Water ETF tracks the S-Network Global Water Index. The S-Network Global Water Index is composed of approximately 60 global water utilities and companies engaged in water infrastructure and technology development. The index includes only those companies that are significant participants in the global water industry.

iShares S&P Global Water ETF (iShares)
iShares S&P Global Water ETF tracks the performance of the S&P Global Water 50 Index. The S&P Global Water 50 Index offers exposure to the 50 largest and most liquid listed companies globally that are involved in water-related businesses.

Lyxor World Water ETF (Lyxor)
The Lyxor World Water ETF tracks the SG World Water WOWAXcw Index. The WOWAXcw Index aims to reflect the development of the water sector and consists of the 20 largest companies globally in the fields of water utilities, water infrastructure and water treatment.

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