Investing in water Investing in water Investing in water

Investing in water

Summary:  A common New Year's resolution is "Dry January". For those who want to go ahead and make 'water' part of the portfolio, Hans Oudshoorn makes a suggestion about how to invest in this theme.


A common resolution for the new year is to drink less alcohol. I myself have done it several times, but some of my friends always participate in "Dry January" and leave alcohol completely behind for a month. Without intending to be moralistic, drinking less beer or wine whilst drinking more water is often seen to benefit your health.

We don't think about it every day when we run the tap, but water is (perhaps) the most scarce 'good' in our lives. All life on Earth depends on water. It is a primary necessity of life for humans, animals and crops. The interesting thing is that as an investor in the stock market, you can also quench your financial thirst with water, hence in this article I consider an opportunity for investing in the space.

Investing in water is investing in scarcity 

Water covers about 71% of the Earth's surface. The overview below shows that of all that water, about 97.5% is salty (seas, oceans and salt lakes) and only 2.5% is fresh. Not all fresh water is equally accessible; only a small part is surface water (1.2%), a large part is groundwater (30.1%) and an even larger part is frozen (68.7%). This frozen section, from glaciers to ice caps, cannot be used directly for humans, animals, crops or production processes. For the aforementioned and more data about water, you can review this source from the Water Science School.

Where do you find all the water on earth?

Where do you find all the water on Earth?

The scarcity of water – and clean water in particular – is also apparent from a study published by the World Health Organization (WHO) in 2019. Worldwide, 785 million people do not have access to clean water and 2 billion people use water contaminated with feces, which leads to around 800,000 deaths per year. 

In the same study, the WHO states that by 2025, half of the population will live in a 'water stressed area'. Either an area where the demand for water exceeds the amount available for a period of time, or where poor water quality limits its use. The industry sector is an important factor here - many production processes require (fresh) water and that puts pressure on the available amount of (clean) drinking water. Water consumption for industry also makes up about 20% of total water demand worldwide.

The changing climate has a clear relationship with water. In recent years, we are increasingly confronted with extremes. From prolonged heat and drought, to floods and landslides, this leads to a lack or abundance of water, resulting in food shortages and/or severe problems. 

In short, there is plenty to do and read about water, and perhaps because of its scarcity, 'water' as a theme can also offer opportunities for investors. 

Investing in the 'water' sector with an international spread

Those who delve deeper into the theme of water will find companies that are involved in water distribution and management, purification, demand efficiency and issues relating to water and food. There's enough variety for those who are interested in individual shares, but there are also diversified choices.

For an international diversification investment, the iShares Global Water UCITS ETF (ISIN: IE00B1TXK627 ) can be found on the German stock exchange with the ticker 'IH2O'. The fund physically invests in global equities in the 'water' sector and currently has 50 stocks in its portfolio. The ongoing charges are approximately 0.65% per annum and the fund scores five stars via Morningstar.

Notably, the fund also has a Morningstar Analyst Rating™ of Silver, investing in equities that score well on sustainable business practices and have a smaller CO2 footprint than their peers. Overall, the fund scores three globes for the Morningstar Sustainability Rating™. The dividend yield is between 0.75% and 1.5% on an annualized basis and is generally paid semi-annually in May and November. 

The main risks? There is currency risk - as mentioned, the fund is denominated in euros, but there are many foreign companies within it. Of course, you also run market risk. When financial markets are under pressure, water related stocks will experience that pressure too. In a nutshell, the fund would be interesting for long-term investors who can and want to bear equity risk and who want to 'quench their financial thirst in the stock market' with part of their portfolio. Click here for more information about the iShares ETF.

Please remember that investing involves risk, historical performance is not a guarantee of future of returns and your investments may lose value.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
Beethovenstrasse 33
CH-8002
Zurich
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.