World Water Day was earlier this week. Did you miss it? I did too. It’s better late than never, right?
Did you know there are 2 billion people without access to safe water? (Source: WorldWaterDay.org) That’s crazy. It’s one-quarter of the people on the planet.
Fortunately, the water in the United States is generally very good. In most places, you can get water very easily. Much of the time it is free. (The US isn’t perfect. There are the Flint, Michigan problems and our infrastructure is aging. We also have some extreme droughts in the southwest states.)
When we think of clean water, we think about environmental issues such as global warming and pollution. Those are certainly huge problems, and a great topic for Earth Day in April. Instead, today, I’d like to cover a water topic that few people seem to write about – investing in water.
Investing in water may sound silly. It’s not gold or oil or whatever you would think is a precious commodity to invest in. However, I think those climate change and pollution issues are going to make water an ever-increasing precious resource. Let’s face it, water is the most important resource. Humans can live without gold or oil – water is a completely different story.
Do you remember Cape Town’s water crisis of 2018? They almost ran out of water completely. There was a lot of talk about hitting “Day Zero” when there would be no water. Fortunately, they were able to take a number of steps to buy time and allow the rainfall to catch up. Today, Cape Town is in a good place.
It may seem like there’s plenty of water on the Earth. There is. However, only 1% of the Earth’s water is available and drinkable. The vast majority is saltwater. We can make that saltwater into drinking water, but the process of desalination isn’t cheap or easy.
Investing in Water
It turns out that there are several different water indexes out there. Some examples are:
- Dow Jones U.S. Water Index (DJUSWU)
- S&P Global Water Index
- ISE Clean Edge Water Index
Unfortunately, those indexes created by companies aren’t very useful unless you can actually invest in them. You need an ETF or a mutual fund that you can buy. Fortunately, it looks like there are a few to choose from:
PowerShares Global Water ETF (NYSE: PIO) – This ETF focuses on companies that conserve and purify water globally.
PowerShares Water Resource ETF (NYSE: PHO) – This ETF focuses on companies that conserve and purify water in the United States.
Guggenheim S&P Global Water ETF (NYSE: CGW) – Like PIO, this ETF focuses on companies that conserve and purify water globally. It tracks a slightly different index, but it doesn’t differ too much from PIO. It has the lowest expense ratio of any of the water ETFs I looked at with a 0.57% expense ratio.
If I were to pick one ETF, I’d go with CGW. It has the lowest expense ratio and it is the most diversified. I would eliminate PHO because it lacks the global exposure of the other two ETFs. The performance of CGW and PIO is very, very similar over the last 5 years, so CGW wins with the lower expenses.
How Much Should You Invest in Water
If you’ve been convinced to invest in water, the next question is, “How much should you invest?”
That’s a difficult question. On one hand, water is a very narrow sector. It’s not very diversified at all. On the other hand, the water companies aren’t going away any time soon and I can see the sector growing a lot. It reminds me of investing in solar which has done very well for me since 2015.
Finally, there’s the idea that investing in clean water is… well… just a good thing. It’s investing in something that can only help humankind.
In the end, I’d say it’s probably appropriate for anywhere between 1-3% of your total portfolio. You’ll likely already have some of the companies in index funds. I try not to put too much emphasis on individual sectors. The issue with investing 1-3% of your money is that even if the water investments explode, your portfolio probably won’t see huge gains.
What do you think? Are you going to invest in water? Leave me a comment below and let me know.