Introduction to Water as an Investment

Introduction to Water as an Investment

You know water is the source of life, but I want to tell you it can also diversify your investment portfolio. Like gold and oil, water is a commodity, and it's getting scarce these days. As an investor, you can gain exposure through brokers offering water indexes, mutual funds, and exchange-traded funds. With any scarcity, the water shortage opens up real investment opportunities.

Key Takeaways

Let me outline the essentials for you. Water is arguably the most critical resource on Earth. Shortages can cause social, political, and economic disruptions. It's becoming scarcer because of climate change, pollution, and growing demand. Given its importance, you can diversify your portfolio by investing in water-related assets. There are multiple indexes, mutual funds, and ETFs that let retail investors like you access water-related securities.

Understanding Water Investments

The case for investing in water is straightforward: it's one of the most vital resources, and it's set to become much scarcer. About 70% of Earth's surface is water, but over 97% is saltwater, unusable for drinking, irrigation, or most industries. Of the remaining 3%, only about 1% is readily available for human use.

Rapid industrialization and agricultural demands have led to global water shortages. Regions facing this include China, Egypt, India, Israel, Pakistan, Mexico, much of Africa, and US areas like Arizona, New Mexico, California, and West Texas.

Pollution worsens the situation, emphasizing the need for clean water. Think of the Gulf Coast dead zone from fertilizer runoff or MTBE in well water across the US from California to Maryland. Overseas, incidents in Russia and China show pollution isn't just a Western issue. Fouled supplies further limit fresh water for humans.

$55 Billion Investment in Clean Water

On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act, authorizing $1.2 trillion in spending. This includes $55 billion for clean drinking water, $65 billion for clean energy, and $21 billion to clean up polluted sites. This is positive for clean water efforts, as it expands access for households, businesses, schools, and child care centers in urban and rural areas. It also funds water infrastructure to remove lead pipes.

Water Investment Indexes

You have several popular indexes to track water-related opportunities. The Dow Jones U.S. Water Index covers various US water companies. The ISE Clean Edge Water Index, launched in December 2000, includes 36 stocks in water distribution, filtration, flow technology, and related solutions. The S&P 1500 Water Utilities Index is a subset of the broader utilities index, focusing on water companies.

The S&P Global Water Index, started in 2001, has 100 worldwide companies in water utilities, infrastructure, equipment, and materials. The MSCI Global Sustainable Water Index looks at developed and emerging markets, focusing on companies with at least 50% revenue from sustainable water products and services. Utility indexes often include some water stocks as well.

720 Million People in Water Stress

That's the number—10% of the global population—living in countries with high or critical water stress levels.

How to Invest in Water Securities

Companies profiting from water include beverage providers, utilities, treatment firms, and equipment makers like those for pumps, valves, and desalination. Check the holdings of water indexes to find suitable investments. From big names like General Electric to smaller ones like Layne Christensen, they're all in the water market. Some larger firms offer dividend reinvestment plans alongside direct stock buys.

The bottled water market is expanding—in the US, per capita consumption hit 46.4 gallons in 2023, up from 31.6 in 2013. A 2018 UN study shows 177 countries use desalination for freshwater. Add companies in these areas to your portfolio for exposure.

If picking stocks isn't for you, consider ETFs, mutual funds, or unit investment trusts. The Invesco Water Resources ETF (PHO) tracks US companies in water conservation and purification, with 40 holdings as of February 28, 2025. The iShares U.S. Utilities ETF (IDU) offers some water exposure. Others include the Invesco Global Water Portfolio ETF (PIO), First Trust Water ETF (FIW), and Allianz Global Water Fund, which focuses on water supply, quality, and efficiency.

Investing in Water as a Commodity

You can invest in water directly via futures on the Chicago Mercantile Exchange, tied to California water prices. These let you bet on the Nasdaq Veles California Water Index's future value.

Michael Burry's Approach to Water Investment

As shown in 'The Big Short,' Michael Burry invested in water after his famous short. He later explained that food is the way to invest in water—grow it in water-rich areas and sell in water-poor ones. Farmland in high-precipitation zones bets on water's future value. For you as a retail investor, water stocks might be simpler.

What Are Water Stocks?

These are shares in companies tied to irrigation, utilities, treatment, or other water industries. Invest by buying individual stocks or through mutual funds and ETFs with high water exposure.

The Bottom Line

Demand exists for investments profiting from fresh, clean water needs, and this will continue. You'll see more options to invest in this commodity and the companies delivering it. Adding water exposure to your portfolio takes some research, but opportunities are plentiful.