Give the Tortoise Water Fund (CBOE: TBLU) its due. It is up nearly 19% year-to-date and was one of just a handful of exchange traded funds hitting record highs on Thursday. TBLU is two and a half years old.
TBLU tracks the Tortoise Water Index. The Tortoise Water Index is a rules-based, modified cap-weighted, float adjusted index designed to track water companies or companies that derive significant revenue from either water infrastructure or water management, including public water distribution or supporting/enhancing water distribution infrastructure via equipment, engineering and/or consulting, along with water distribution and usage companies engaged in water efficiency, water treatment, and irrigation.
TBLU will allow investors to benefit from the expected and much needed investments to rebuild existing infrastructure, construct new infrastructure and better manage and enhance the sustainability of the finite resource.
TBLU’s underlying benchmarks also employs a form of smart beta indexing strategy, specifically a revenue-weighting methodology, where revenues from all potential index companies are scanned annually from company 10-Ks or equivalents, and those with at least 50% of gross revenues from water related activities comprise the “direct water exposure” segment, which are then weighted to represent 70% of the total, and those with “indirect water exposure” will be weighted to represent 30% of the index.
“Climate change, pollution, poor sanitation, an ever-expanding population, and increasing consumption have resulted in water scarcity in many parts of the world. Wastewater runoff from agriculture, industry, and expanding cities, especially in developing nations, is another major issue. In fact, the International Food Policy Research Institute anticipates a gap of 40% between water demand and supply over the next 15 years,” according to Zacks.
Soaring water demand is another factor bolstering the long-term thesis for ETFs like TBLU.
Like the many other aging infrastructures across America, the U.S. water infrastructure is in dire need of updating and improvements. This opens up an exchange traded fund investment opportunity that could lead to one of the largest build outs ahead.
“Global demand for water has been rising at a rate of 1% annually, and would continue to grow significantly during the next 20 years, per United Nations. Notably, about 70% of the total demand comes from irrigation while demand from industrial applications and domestic households account for about 22% and 8%, respectively,” notes Zacks.
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