Water has become an increasingly valid investment theme in recent years and it is one providers of exchange traded funds have indulged. Today, there are several seasoned water ETFs on the market, including the PowerShares Global Water Portfolio (NYSEArca: PIO).
As the world reviews the effects of climate change, global population growth and inadequate or aging infrastructures, investors can consider water industry-related exchange traded funds to capture potential long-term opportunities.
The World Energy Council estimates that total power demand for water is expected to rise 100 billion cubic meters by 2050. For instance, Asia faces challenges to water supply for power generation to meet growing population and associated power requirements. China alone is projected to see water demand rise 15% in the next 40 years.
“While we in North America tend to take fresh water resources for granted, fresh water is an increasingly scarce commodity in other parts of the world. There is a fixed amount of water available worldwide, with 97.5% of it in the form of salt water unfit for human consumption,” according to a PowerShares note. “Of the remaining 2.5%, more than two-thirds of it is frozen in ice caps. The world’s population now stands at roughly 7.3 billion, and is expected to grow by a third to 9.7 billion by 2050. The United Nations estimates that only 1% of the world’s fresh water supply is accessible enough to meet the needs of a rapidly expanding world population.
The First Trust ISE Water ETF (NYSEArca: FIW) and PowerShares Water Resources Portfolio (NYSEArca: PHO) both track U.S. companies that derive their revenue from products that conserve and purify water.
Water investing is a good way to play a long-term trend as the world still needs to find sustainable sources of potable fresh water, especially with the specter of climate change.
“Many emerging markets are also less stringent in regulations preventing the contamination of water. That means that not only is the amount of fresh water per person declining, but an increasing amount of that water is contaminated and unpotable,” according to PowerShares. “As a result, emerging market governments are funneling large amounts of capital into areas like water conservation, purification and infrastructure. Over the past decade, water infrastructure spending has grown rapidly in both absolute terms and as a percentage of gross domestic product (GDP) in most emerging markets. Emerging markets now account for half of all infrastructure spending worldwide.”
PIO is up more than 8% year-to-date.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.