Filed under: ETFs, Alternative Investment, Commodities & Futures, Public Utilities, Financial Education
If you want to know what it is, just watch any episode of a survival reality show. Whether it's "Man vs. Wild," "Survivorman" or even "Naked and Afraid," the first thing the TV survivalists do after assessing their situation is to look for this precious commodity -- clean, drinkable water.
We need water to live. The average person can last up to six weeks without food, but according to Dr. Claude Piantadosi, a professor of medicine and pathology at Duke University, the longest you could expect to survive without water is about 100 hours. And of course, water also is needed to grow the produce and raise the livestock we eat. It cools our cars and industrial machines. It keeps us clean and is essential for processing our waste. Essentially, without enough water, society as we know it ceases to exist.
Though almost 71 percent of the Earth is covered with water, 97.5 percent of it is salt water, and two-thirds of the fresh water is locked up in polar ice, leaving less than 1 percent of all the water in the world useful for society's needs. Fundamentally, that limited supply is the reason water prices could float much higher in the future.
Californians have seen the cost of their water go up dramatically due to increased demand and a long drought. The state's Department of Food and Agriculture estimates that if the current shortage isn't addressed, it will cost California as much as $2.2 billion in lost crop and livestock revenue in 2014 alone, as well as 17,000 seasonal and part-time jobs.
Investing Down Under or Via ETFs
The idea of water as a speculative investment recently got a boost from the launch of Waterfind, an Australian futures exchange for trading in water. Since the exchange went live in late March, more than 16.5 billion liters of water have changed hands through its online marketplace. Though that's a drop in the bucket in terms of global water reserves, it is still an important symbolic step in the commoditization of water as an investment vehicle.
But you don't have to live in Australia or learn about futures to add water investments to your portfolio. Some American exchange-traded funds offer exposure to companies and entities whose success rises and falls with the price of water.
- PowerShares Water Resources Portfolio (PHO) is the biggest and most popular of these ETFs. Consisting of mostly small and mid-cap companies that produce products to conserve and purify water for business and industry, it includes well-known names such as American Water Works (AWK), Flowserve (FLS) and Toro (TTC).
- PowerShares Global Water Resources Portfolio (PIO) is similar to PHO except that, per its name, it has a more global focus. Though American companies make up the largest allocation, the United Kingdom, France, Brazil and Japan are also well-represented.
- S&P Global Water Index ETF (CGW) includes domestic and international companies and is half water utilities and half water equipment and materials companies.
- First Trust ISE Water Index Fund (FIW) holds a global portfolio of companies that earn their revenue from the potable and wastewater industry, 90 percent based in the U.S.