Water is an important resource. Without it, life as we know it would perish. Water is not only an important asset, it can also be an excellent addition to your portfolio. If you're wondering why you should add it to your portfolio and how to invest in water, here's what you should know.
Why water is part of your portfolio
While water appears to be rare as it covers about 71 percent of the earth's surface, the vast majority (over 96 percent) of it is salt water. In comparison, very little water on the planet is drinkable without desalination, which is an expensive process on a large scale.
In addition, part of the fresh water, around 2 percent, is not readily available. Overall, only about 1 percent of the water is potentially ready for human consumption.
Investing in water can benefit from the potential shortage. In the event of water shortages, there is a possibility of considerable profits. Otherwise, water is unlikely to become less valuable unless there is an unprecedented breakthrough. This means that in the worst case, water can give your portfolio a degree of stability, which can be ideal for more conservative investors.
How to invest in water
If you want to find out how to invest in water, you have a few options. Everyone has their own advantages and disadvantages. Therefore, you should consider your needs, current portfolio mix, financial goals, and risk tolerance before deciding on an approach. In this way, you can tailor your investment to your preferences and ensure that you are taking the right step for your financial future.
Here you see the potential opportunity to invest in water.
Some water utilities are listed so you can invest directly in them. American Water Works Co. is one such example, which is indicated with the ticker symbol AWK. Aqua America (WTR) is another such option.
If you use this approach, you are buying shares in a single company. This way, if you already have a diversified portfolio, you can invest in water while reducing your risk. However, if you're not diversified, investing in individual companies is the riskier approach, since you're essentially putting a lot of your proverbial eggs in one basket.
As with any investment, you should examine the utility before proceeding. This way, you can ensure that you understand the current status and determine whether this is the right option for you.
Bottled water company
The bottle water market has grown. By investing in companies that sell bottled water, you can add water to your portfolio, albeit in a somewhat indirect way. In addition, most bottled water vendors also have other beverages under their corporate roof, which can lead to diversification, at least from a product offering point of view.
Three of the largest bottled water producers are the Coca-Cola Company, the Nestle Group and PepsiCo. When you invest in one of the larger companies, you also invest technically in water.
Water filtration and cleaning companies
Another somewhat indirect approach is to invest in water filtration companies. Like bottled water, many water filtration brands belong to larger organizations, most of which are listed. For example, Clorox owns Co Brita. The PUR brand belongs to Helen of Troy Limited, while Everpure is part of the Pentair PLC product range.
On the cleaning side, DowDuPont Inc is a big player. The company mainly works on nanofiltration and reverse osmosis technologies, both of which can make drinking water safer. Another option in this niche is Siemens, which could also be a worthwhile investment opportunity.
Water index funds and ETFs
There are a variety of index funds and ETFs that focus on water-related stocks. The fund typically holds shares in a group of companies, some of which may only have two. Some of the options in this category include:
- Bloomberg World Water Index
- Dow Jones US Water Index
- First Trust Water ETF
- Invesco Water Resources ETF
- ISE-B & S water index
- MSCI World Water Index
- PowerShares Global Water Portfolio ETF
- S&P 1500 water supply index
- S&P Global Water Index
Even though index funds and ETFs automatically have some degree of diversification, you still want to examine the history of the fund. Not all of them are as successful as their colleagues. It is therefore worth spending some time exploring performance before getting in and investing.
Water mutual funds
There are also mutual funds that focus on water. These also automatically offer a certain degree of diversification, the amount of which varies from fund to fund. Here are some potential investment opportunities that fall into this category:
- AllainzGI Global Water Fund Class A.
- Calvert Global Water Fund Class A.
- Institutional class of the Pax Global Environment Markets Fund
Broad index funds, mutual funds and ETFs
Some broader index funds, mutual funds and ETFs also hold water-related stocks. The difference to these is that they also have a mix of other companies, possibly in numerous sectors.
The advantage of this approach is a higher level of automatic diversification. In essence, when you buy these funds, you invest in small parts of a variety of companies. This could reduce your overall risk.
However, this also makes choosing an option more complex. Some funds have dozens of companies, and it may take some time to examine each stock to determine if the fund is right for you.
You will also need to locate a broader index fund, mutual fund or ETF with a connection to a water related company. When it comes to bottled water, this may not be a challenge. For utility companies and other water-related stocks, however, the research could take a little longer.
Make the water investment
Once you know what water investments you want to make, you need to buy the right stock, index fund, or ETF. You usually do this through a broker, just like with any other stock. Simply look up the investment and proceed with the purchase as usual.
If you don't have a broker, you may want to explore one of the many online options. Many of them are easy to use and come with accompanying smartphone apps that allow you to manage your portfolio from virtually anywhere.
Have you ever invested in water or any other important resource? Tell us about your experience in the comments below.
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