Water is the liquid that gives and sustains life. In some ways H2O, dihydrogen monoxide, is a human right, necessary for sheer survival and effort. In another way, water is a commodity similar to oil, gold, or copper. Although it might not be traded on futures markets, water may still be a good idea for investment. Only 1 percent of the planet's water is readily available for humans to consume. Its scarcity and utility generate great demand. Here are some ways to invest in water, and the pros and cons of each.
A mutual fund and ETF, or exchange-traded fund, are both comprehensive and diversified ways to invest, offering exposure to many companies involved in water. AllianzGI Global Water Class A Load Waived (MUTF: AWTAX.LW) is a mutual fund that invests in stocks in the S&P Global Water Index and Palisades Water Index. According to Morningstar, it pays a dividend that yields 0.22 percent, a 5-year annualized total return of 5.91 percent, and an expense ratio of 1.44 percent. However, ETFs generally have lower expense ratios. PowerShares Water Resources ETF
If investors want to pick water stocks directly, then they have many choices as well. One of the premier water utility companies is American Water Works
Investing in water also involves moral analysis. In the future, due to climate change, drought, and rising demand from China and emerging markets, water will become even more precious. Desalination and extraction from air are imagined solutions to scarcity; however, they need more time to be financially and technologically feasible for general use. Recently, some companies that bottle water, such as Nestle (VTX: NESN), have taken heat for profiting from the California water shortage. If in the future a market is created for water futures contracts, as some on Wall Street want, then water will be more commercialized and less democratic. Should water be increasingly privatized or remain a public good? Water investors must ponder such philosophic questions.
The author does not hold any positions in any of the stocks above.