Around four million people who get all or part of their water from Lake Constance may have to pay more for it in the future.
(Photo: dpa)
Munich By this year at the latest, the issues of water scarcity and availability have also arrived in Europe. An unprecedented drought prevailed in some parts of Europe. In some cases, water consumption was rationed. However, this problem has not only existed since last summer.
On a global level, this problem has existed for much longer and is already very acute today. According to Unicef, around 2.2 billion people worldwide do not have regular access to clean water. 785 million do not even have basic drinking water supplies. By 2040, almost 600 million children are projected to be living in areas without adequate access to water.
“And this water stress in many regions of the world will continue to worsen as a result of climate change,” says Jonas Knüsel, manager of the “Swisscanto Equity Fund Sustainable Global Water”. And adds: “At the same time, water consumption is growing disproportionately to the growth in world population.”
In his view, since water cannot be replaced, demand for it must be decoupled from global population and economic growth. How this could work can be seen in agriculture. According to the WWF, it currently consumes around 70 percent of drinking water worldwide. Therefore, efficient irrigation systems in agriculture are an important goal for the future.
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“One example is Valmont Industries, the world’s largest manufacturer of water-saving rotary irrigation systems for agriculture,” says Knüsel. According to the company’s latest sustainability report, its irrigation systems save up to 70 percent water compared to less efficient methods.
900 billion US dollars investment in 2021
Simon Frank, Senior Investment Advisor at Pictet Asset Management, believes there will be an increasing demand for products and services that help address water scarcity and availability. “After all, availability in sufficient quantity and quality is essential for human survival.”
According to the Global Water Intelligence Report, around 900 billion US dollars were invested in the water sector worldwide in the past year alone. “And it is expected that this amount will grow by four to six percent per year,” says Knüsel, “although we also see the chance of accelerating growth against the background of increasing awareness of the global water problem.”
>> Read here: These technologies help against water scarcity
At the same time, the need for investment is immense. In 2019 alone, the US water infrastructure investment gap was $81 billion, according to Allianz Global Investors. Other calculations assume that over 100 billion US dollars will be needed annually over the next 20 years.
And those are just numbers for the US. Enormous investments are also necessary in this area in Europe or in the emerging countries. The market is global and offers a variety of investment opportunities. In addition to companies from the field of water technology, these also include water suppliers, who are characterized by continuous and stable earnings in regulated markets, or companies that are active in wastewater treatment.
Evoqua Water Technologies is a provider of water and wastewater treatment solutions. This includes disinfection, filtration and pure water systems as well as various services. Suppliers can also be interesting. Just like the Brazilian company Sabesp. “It benefits from the increasing privatization of the previously municipal water supply, with the market for private water suppliers in Brazil growing strongly and Sabesp actively driving the consolidation of the market,” says expert Frank.
He also considers the technology company Xylem to be attractive. It offers the entire range of components for water supply through to analysis systems for the tightness of pipe networks, explains Frank: “Sales are growing faster than the economy as a whole, and earnings fluctuate less than in other segments of the industrial goods industry due to the high demand .”
According to Knüsel, this is exactly what distinguishes Wasserinvestments: “You also have to consider that the growth of the water industry is less dependent on the economic cycle and that the proportion of recurring operating expenses, the so-called operating expenses, is comparatively high at around 60 percent. This area is therefore less volatile.” However, this only applies to business development.
Financial advisors recommend water funds
The share prices of the companies, on the other hand, cannot completely decouple themselves from the mood on the stock exchanges. Water funds have also had to accept double-digit losses since the beginning of the year. In the long term, however, the development of equity funds is impressive. This is another reason why financial advisors recommend funds to their clients to invest in this segment.
The actively managed equity fund “Pictet Water” achieved a return of almost eleven percent per year over a ten-year period. “For us, it is crucial that we don’t take advantage of the scarcity of water as a resource with the fund, but really invest in solutions,” makes portfolio manager Frank clear. This also applies to other actively managed funds.
An alternative are Exchange Traded Funds (ETF), which track an index. An example of this is the iShares Global Water ETF, which provides access to the 50 largest and most liquid publicly traded companies worldwide. They work in water supply and treatment.
The disadvantage of index products, however, is that it is often difficult for investors to understand whether all the companies included actually use water sustainably. Because only if this is the case will the investment help to solve the problem of water shortages. And only that should bring the described growth potential with it.
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