Capitalizing on Water Investing Requires Depth | ETF Trends

Global climate change is amplifying water scarcity issues. Likewise, water security issues are increasingly included in environmental, social, and governance (ESG) and sustainability conversations.

Those factors highlight long-term opportunity with water investing, including the Invesco Water Resources ETF (PHO). The $1.8 billion PHO is one of the oldest and largest ETFs in the water investing category. While those are notably superficial traits, PHO has the depth necessary to assist investors that are looking to capitalize on an increasingly attractive long-term water investment thesis.

Around the world, water security is under duress, and it will take a variety of sectors and industries to ameliorate what’s currently a grim scenario. From an investment perspective, PHO is relevant on this front because it features exposure to 10 industry groups, indicating that it has the breadth necessary to possibly capitalize on an assortment of water-related themes.

PHO’s depth is pertinent to long-term investors because a variety of sources are contributing to elevated water demand, in turn straining water security.

“Global water use is expected to grow by roughly 1% per year over the next 30 years, driven by industrial and energy sectors as well as population growth, economic development and shifting consumption patterns,” noted Goldman Sachs Asset Management (GSAM). “With households making up only 12% of all water consumption worldwide and business (both agricultural and industrial) responsible for 88%, companies are realizing their water use can’t operate as it once did as this vital resource becomes scarcer and/or less suitable to use.”

Adding to the long-term allure of an ETF like PHO are the variety of industries that need stable water sources to thrive. Agriculture is an obvious source of such demand, and it’s fair to say that a good amount of investors know that the healthcare sector needs water to operate. The same goes for technology. For example, the production of semiconductors is water-intensive, and with more electric vehicles slated to be produced, global demand for chips, and thus water, is likely to grow in the years ahead.

“Semiconductor manufacturing facilities require large quantities of high-purity water. There are multiple stages of cleaning, rinsing and surface conditioning, and even the smallest contaminants in the production process can jeopardize the quality of the end-product. High-performance ultraviolet (UV) disinfection technology is widely used in industrial water treatment applications to eliminate bacteria and other microorganisms,” added GSAM.

Further supporting the long-term PHO case, GSAM noted that industries such as energy, mining, and pharmaceuticals need reliable water security.

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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.