Water Investing: A Look At The Newest ETF
Water Investing – are ETFs a smart way to invest in water?
Ever since the film The Big Short hit cinema screens, investors around the world have been intrigued by Michael Burry’s next bet and as it turns out, since he disbanded Scion Capital after the financial crisis, Burry has concentrated his investing activities on water.
The water market has the potential to become the next oil market, with companies chasing after the world’s finite water resources.
Water Investing
The United Nations estimates the global population will hit 8.5 billion by 2030 putting pressure on already strained water sources. As economies industrialize, the volume of water use per capita is also dramatically increasing. In 1900 the global annual water use per capita was 350L per day, by the year 2000 that figure had risen to 640L.
More water for human consumption is only part of the problem according to a new report from Summit Water Capital Advisors. Agriculture production demands 70% of all freshwater produced around the world and forecasts suggest food production must increase by as much as 60% by 2050 to feed the world’s growing population. Also, 27% of all water used in the United States outside the agricultural sector is used to help generate energy — something the world can never have enough of.
It is clear then that the demand for water will soar over the next few decades but trying to profit from this trend is not as easy as it is with other commodities. Many water utilities are state-controlled and many of those that aren’t have been acquired by private equity firms in recent years. Privately run water firms are usually subject to stringent regulations as well, limiting upside potential even if you do manage to find an investable utility.
Water Investing – A New ETF in town
Thankfully, if you are looking to invest in water, some ETFs have emerged over the past few years that specialize in water investing. There are six listed on US exchanges, with the latest product going live only a few days ago.
The Tortoise Water Fund (TBLU) is the latest arrival. The fund uses a passive management approach and seeks to track the total return performance of the Tortoise Water IndexSM, which “provides access to the water infrastructure, management and treatment companies that appear poised to benefit from the expected and much needed investment in rebuilding existing infrastructure, constructing new infrastructure and better managing this vital, but finite resource.”
The Tortoise fund only has a short history, so it’s impossible to assess the fund’s performance. However, another fund, the First Trust Water (FIW) has nearly ten years of history behind it having been founded in May 2007. Over this period the ETF, which has an annual expense ratio of 0.57%, has returned 8% annualized outperforming similar peers. The fund’s holdings are spread around the world, and it is relatively small in size compared to other ETFs, managing only $251 million.
Other ETFs besides First Trust and Tortoise Water include PowerShares Global Water Resources (PIO), Summit Water Infrastructure Multifactor (WTRX), Guggenheim S&P Global Water (CGW) and PowerShares Water Resources (PHO).
Note: This article was contributed to ValueWalk.com by Rupert Hargeaves.
Category: ETFs
