Add Guggenheim Investments to the small, but growing, number of big picture investors that think water is the new oil.
Michael Burry of Scion Capital and “The Big Short” fame is a water buff. T. Boone Pickens likes it too.
There’s a reason for it, says Lauren Smart, a managing director with TruCost and it’s simple: scarcity.
“It’s a mainstream macro economic risk and an opportunity,” she says. “Water is not something you invest in just for ethics or because it makes you feel good.” Not that investing with that criteria is fool’s gold, but for those who like to take the emotion out of investing, water is objective too.
Here’s why: Only 2.5% of the planet’s water is fresh water, and 68.9% of it is frozen and another 30.8% is under ground. Water is used in farming and in power generation. As societies eat more, and heat more, they need more water. It takes 15,415 liters of water to produce one kilogram of beef. It takes 10,000 liters of water to produce a kilo of cotton.
The United Nations estimates that there will be a 40% shortfall of water availability by 2030. Overall, environmental concerns are more prominent than ever with water impacting economies.
Areas of greatest water stress are in the Southwest U.S. down to Mexico, all of the Middle East and Central Asia, China, and Northern Africa with exception of Egypt, according to the World Resources Institute.
How should investors integrate water uncertainty into a portfolio? Sustainable business advocacy group Ceres has some ideas here.
Guggenheim, meanwhile, has an ETF.
“The water industry is global and the companies that are addressing this need are global so your fund has to be global too,” says William Belden Managing Director, Head of ETF Business Development at Guggenheim Investments.
In their S&P Global Water Index (CGW 54,08 +0,09 +0,16%) ETF, most of its 49 stocks are U.S. firms like American Water Works (AWK 132,82 +2,05 +1,57%) and Pentair (PNR 78,95 -0,95 -1,19%) even though Belden says investors need to think about this globally.
Foreign firms include their number one holding Geberit of Switzerland and water treatment company Veolia Environment (VEOEY 16,84 +0,03 +0,18%) of France.
“Look for where the water distress is and where water crises are likely to emerge, and find the companies that can remedy that,” he says.
The fund tracks the the S&P Global Water Index and invests in water utilities, infrastructure, equipment, instruments, and materials. They buy across market cap and are mainly focused on water infrastructure an companies that might benefit from efficient delivery of water, and improving the quality of water.
Guggenheim also runs a unit investment trust product which invests in companies that have a significant connection to the global water business, including the procurement, treatment, purification, filtration and distribution of water and wastewater treatment.
A recent survey of the earnings calls of the 500 companies listed in the S&P 500 showed that 63 mentioned a drought in those earnings calls as a revenue problem.
“It’s quite significant when you think about it,” says Smart, who hopes that an estimated $1.7 trillion needed in water infrastructure becomes part of an eventual infrastructure spending plan in Washington.
If not, it will be a headwind. But it won’t change the big picture for water scarcity and opportunity. “We’re active participants in global water,” says Belden. “We are big believers in it and have been in it now since 2007.”
CGW is up 23.6% since May 2007.