Not all themes are created equal. While the exciting subject matter has made robotics, automation and artificial intelligence hot topics for investors, one that has quietly gone under the radar is water.
A scarcity in some parts of the world, it is one of the most important resources to humankind, but is it investable?
Projections for the coming decades paint a grim picture for the water industry, according to the asset manager Robeco. More than half of the world’s population could experience water scarcity in at least one month per year by 2050.
For ethical investors, a rise in droughts and floods, up 50% and 35% over the past decade, and water degradation as a result of poor wastewater management, is also threatening biodiversity.
Robeco’s water study showed that large-scale investments are needed in both emerging and developed markets in order to improve efficient water use, increase water supplies, ensure water quality, and mitigate scarcity in agriculture, energy and industry, as well as within urban municipalities and rural communities.
Dieter Küffer, senior portfolio manager for the RobecoSAM Sustainable Water Equities fund, said: “The challenges for clean water provision are still at play – we cannot rest on our laurels.”
Andy Merricks, fund manager at 8AM Global, said that the sector used to be “quite boring”, with just a few utility companies being the mainstays, but in recent years it has become more relevant.
“It is so much more than that now, tied in closely with the various environmental issues that are at the forefront today,” he added.
Investors should treat it as an investment opportunity in its own right, rather than lumping it in as part of a wider fund, he said, much in the same way that renewable energy has become a growing theme.
“The need for water is obvious, but the problem that needs solving is that a lot of it is in the wrong place and/or unusable. As with most problems, the solutions lie in innovation and new technologies so that investing in water is no longer simply buying utility shares, in a similar way that investing in healthcare is no longer all about investing in drug companies,” Merricks said.
For investors who want to access the area, he suggested the €8.3bn (£7bn) Pictet Water fund as a “stalwart of actively managed funds in the sector”, while passive options are growing through the likes of the iShares Global Water UCITS ETF.
Performance of funds vs MSCI World index over 10yrs
Source: FE Analytics
James Calder, research director at City Asset Management, disagreed. He said that although there was clearly a need and investment case for investing in water, for most investors, a general fund would work better.
“It is likely that the subject will gather greater interest, but one has to be careful not to confuse water investing with ESG, as many companies utilising water are not always that ethically/environmentally minded,” he noted.