Reasons to invest in water
Let us first summarise the main reasons for investing in water-related shares.
Please note that before each purchase, or possible sale, of your shares, you should plan your actions carefully and consult a specialist, such as a financial adviser.
- Growing demand: The global population is currently increasing every day. This generally also increases demand for high-quality drinking water, which more than 8 billion people need every day. This growing demand creates an investment opportunity for companies in the water sector. These may include water resource managers or companies involved in infrastructure and technology for water treatment and distribution.
- Scarcity of resources and possible future innovation: High-quality drinking water is undoubtedly a scarce resource. Water availability may worsen in the future, for example as a result of climate change. Water scarcity creates potential for companies that can innovate. One of the main examples in recent years is the desalination of seawater, along with improvements in water distribution and storage.
- Portfolio diversification: Investment professionals consider diversification of every investor’s portfolio to be essential. Water is a specific sector which, in most cases, is not dependent on the development of traditional economic cycles. Billions of people around the world need water every day, so its consumption is usually not subject to seasonal fluctuations.
By investing in water, you may potentially reduce investment risk and, conversely, increase the overall long-term stability of your portfolio. However, this does not always apply in every circumstance. Investing in shares remains associated with risks, such as share price volatility and the possible loss of the funds you have invested.
52% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Selected shares for investing in water
One way to invest in water is to choose specific water companies or shares related to the water industry. Examples include companies involved in water supply, water treatment or water infrastructure. Below is a list of selected shares, including their tickers and a brief description of their activities, as well as their dividend yield over the past year where applicable.
- Veolia Environment (ticker VIE): Veolia Environment is a global company focused on operating water systems and protecting the environment. It is traded on the Paris Stock Exchange (EPA) in France. The company has extensive infrastructure and provides services in the field of water management. It also pays stable dividends to investors. Last year, Veolia’s dividend yield was approximately 4%.
- American Water Works Company (ticker AWK): The company is one of the largest public providers of water services in the United States. It is traded on the New York Stock Exchange (NYSE) in the US. It has a strong market position and is positively rated for its reliability. American Water Works Company shares are known for their relative stability and long-term growth since the company’s listing in 2008. Compared with their 2021 highs, the share price fell noticeably less than the price of some, for example, technology shares (Google, Nvidia). At that time, the decline was “only” around 25%. The company’s dividend yield last year was around 2%.
- Xylem Inc. (ticker XYL): Xylem Inc. is an American company focused on water technology and services, headquartered in Washington, D.C. It is traded on the New York Stock Exchange (NYSE). Xylem offers innovative solutions for the water industry, including water pumps and equipment for water treatment and water quality monitoring. The company invests in research and development over the long term. Last year, the company paid a dividend of approximately 1.20%.
- Essential Utilities (ticker WTRG): Essential Utilities is an American water company operating across many US states, such as Pennsylvania, Ohio and Texas. The company is traded on the NYSE. It provides services related to drinking water and wastewater to more than 5 million end customers. Essential Utilities has had a steadily rising price since 2008 and pays a regular dividend. As of last year, the dividend yield was 2.87%.
Finally, it should be added that selecting only individual shares, known as stock picking, is associated with investment risks. Before buying shares, or selling shares you already own, always consult a specialist.
Selected ETFs for investing in water
You can also invest in water through ETFs, meaning exchange-traded funds that track the performance of a particular market or sector. The following list shows ETFs that specialise in companies in the water industry.
- Invesco Water Resources ETF (ticker PHO) focuses on investments in companies operating in the field of water resources. The fund tracks the performance of the NASDAQ OMX US Water Index. The companies in which the fund invests include manufacturers and operators of water infrastructure, such as Ecolab Inc (ECL) and Ferguson PLC (FERG). The fund pays dividends, currently with a yield of approximately 0.85%.
- iShares Global Water UCITS ETF (ticker SWDA) is a fund managed by iShares that focuses on investments in companies from around the world operating in water management. The fund tracks the S&P Global Water index, which includes companies such as American Water Works (AWK), Xylem Inc. (XYL) and Severn Trent Plc (SVT). The fund currently does not pay a dividend to end investors, meaning it accumulates and reinvests dividend income. This means it uses the dividends under its management to buy new shares, thereby increasing investors’ assets.
Indices for investing in water
If your broker does not offer the ETFs listed above, meaning the specific instruments, it is possible to invest in other funds that track particular indices for investing in water. The most important investment indices for water are listed below.
- S&P Global Water Index
- Dow Jones U.S. Water Index
- NASDAQ OMX Global Water Index
- ISE Clean Edge Water Index
The indices partly overlap, so they partly track the price performance of the same companies. It is important to learn as much as possible about a specific water investment index before you start investing in it.