Water stocks and futures are becoming an attractive investment as water scarcity makes it an even more precious commodity. Learn about ways to invest in this liquid commodity.
The water industry has been growing amid concern over climate change, extreme weather, and other factors
President Biden’s infrastructure plan includes efforts to eliminate lead pipes and supply cleaner water
Investors can look for water-related investment opportunities in several ways, including publicly traded water stocks
Water is a fixed and precious resource—it only seems like we’re up to our ears in it. The water “trade” is growing rapidly amid recent catastrophic environmental events such as wildfires, floods and hurricanes; drinking water contamination from old lead pipes; and growing attention on climate change. New Biden administration policy proposals include efforts aimed at providing cleaner drinking water and addressing water scarcity.
Much like oil and gold, water can be viewed as a tradable commodity or asset with potential investing opportunities, said Michael Kealy, education coach at TD Ameritrade. Familiar publicly traded companies, as well as smaller, more under-the-radar businesses are ramping up in water, and the industry overall bears watching, Kealy noted.
“Water is a dwindling resource, but everyone needs it, and it’s entirely necessary for the global economy,” Kealy said. “While water may not be always be in the limelight or considered a ‘core portfolio allocation,’ there are expanding numbers of ways to look at water from an investor’s standpoint. Water may also present opportunities to diversify globally.”
Here are a few pointers on investing in water.
The global water and wastewater treatment equipment market was valued at nearly $62 billion in 2020 and is expected to grow 4% o year through 2028, according to a March 2021 report by Grand View Research.
Factors driving water market growth include rapid urbanization and industrialization, diminishing freshwater resources, rising environmental concerns, and increasingly stringent government regulations, the report stated.
“Rapid urbanization, technological advancements, infrastructural development, and population growth have increased the demand for fresh and processed water across the globe,” the Grand View report stated. The report also pointed out that amid limited availability of freshwater resources, there’s “a growing focus on wastewater treatment and reuse to meet the rising demand.”
President Biden’s proposed $2 trillion infrastructure plan, announced March 2021, includes $111 billion to eliminate lead pipes from the U.S. water supply and otherwise “upgrade and modernize America’s drinking water, wastewater, and stormwater systems, tackle new contaminants, and support clean water infrastructure across rural America,” a White House report stated. “Aging water systems threaten public health in thousands of communities nationwide.”
In addition to reducing lead exposure in homes, Biden’s plan also aims to reduce lead exposure in 400,000 schools and childcare facilities. “No American family should still be receiving drinking water through lead pipes and service lines,” the report stated.
Many different companies are involved in some form or sector of the water industry and water investments: manufacturers of pipes, pumps, filters, and valves; makers of chemicals used to treat wastewater; or utilities providing water to homes and businesses. Many of these companies are poised to serve cities and other municipalities scaling up efforts to upgrade water infrastructure.
Company examples include Ecolab Inc. (ECL), whose Nalco Water unit is a leading provider of water treatment and process improvements, and Evoqua Water Technologies (AQUA), which serves industrial, municipal, and recreational customers.
Other examples include American Water Works (AWK), Danaher Corp. (DHR), Global Water Resources (GWRS), and Xylem Inc. (XYL), along with DuPont (DD), whose offerings include “membrane science and ion exchange solutions” to make drinking water cleaner.
“Many companies involved in the water industry have global business operations, and they see water as a key part and growth driver of their overall business,” Kealy explained. “For investors, that means there may be opportunities to diversify portfolios globally.”
Water could be considered an “alternative” asset class in the vein of commodities. Several exchange-traded funds (ETFs) are linked to water, and there’s also the S&P Global Water Index ($SPGTAQUA), which tracks shares of 50 companies with water-related businesses, including equipment and materials as well as utilities and other infrastructure (see figure 1).
FIGURE 1: RAPID FLOW. The S&P Global Water Index ($SPGTAQUA) has trended up through 2020 and the first part of 2021. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
Futures exchanges also see potential opportunities in water. In 2020, CME Group (CME) launched a futures contract based on the Nasdaq Veles California Water Index, which tracks the price of water rights across the five largest and most actively traded regions in California’s surface water market.
“Water scarcity presents a growing risk for businesses and communities around the world, and particularly for the $1.1 billion California water market,” Chicago-based CME announced last year in a statement about the new contract.
Overall, the rapidly growing water industry is still in its early stages with many relatively new entrants angling for a piece of the market, as opposed to more “mature” industries. That means it’s important for investors considering water-related opportunities to try to look several years ahead, according to Kealy.
Water is a “long-term theme,” he added. “It’s not an investing opportunity to jump in and out of based on one or two earnings releases. Water is going to be in tremendous demand, and it’s becoming much more important to not waste water and utilize water resources in intelligent ways. The businesses and economies that have the capability to treat water properly can both make money and help society.”
Asset allocation and diversification do not eliminate the risk of experiencing investment losses.
Use stock screener to narrow selections based on sectors.
Log in to your account at tdameritrade.com > Research & Ideas > Screeners > Stocks.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Futures and futures options trading involves substantial risk and is not suitable for all investors. Please read the Risk Disclosure for Futures and Options prior to trading futures products.
Futures accounts are not protected by the Securities Investor Protection Corporation (SIPC).
Futures and futures options trading services provided by TD Ameritrade Futures & Forex LLC, member NFA. Trading privileges subject to review and approval. Not all clients will qualify.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s opinions, policies, or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
Investors cannot directly invest in an index.
All investing involves risks, including loss of principal.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2021 Charles Schwab & Co. Inc. All rights reserved.