A Booz Allen study forecasts more than $22 trillion in global water infrastructure spending between 2005 and 2030. That’s more than the predicted $18 trillion in infrastructure investment for electricity and transportation systems.1
The numbers may be startling, but most experts agree that we have a global water crisis. According to the UN, more than 1 billion people lack access to clean water. And by 2025, research from National Geographic predicts an estimated “1.8 billion people will live in areas plagued by water scarcity, with two-thirds of the world’s population living in water-stressed regions as a result of use, growth, and climate change.”2
Take one example in the United States: In late December/early January, $7 billion of goods and services were at risk of not reaching their destinations because of low water levels in the upper Mississippi river.3 A U.S. Government Accountability Office report estimates water shortages for at least 36 states within the next five years.
Innovation and Opportunities
As businesses and governments face the daunting challenges of this growing crisis, investors can become part of the drive for innovation. And with innovation come opportunities to build wealth in companies that lead in strategic planning and market share.
Current opportunities include established companies that are replacing water delivery systems in developed economies and building systems in developing economies. For example, competition for manufacturing pipes, valves, and flow monitoring technologies is heating up. A new Calvert study shows that chemical and industrial companies that were former polluters are now making products used for water distribution and efficiency, water filtration, and water purification.4
Let’s look at how some of the water funds are doing. According to Morningstar, during the past year two mutual funds and two ETF’s have significantly outperformed the Russell Mid/Small Cap Blend stock index:
1 YR ann. return as of 01-31-13
|AllianzGI Global Water (AWTAX)||19.65%|
|Calvert Global Water (CFWAX)||21.60%|
|Guggenheim S&P Global Water (CGW)||19.68%|
|PowerShares Water Resources (PHO)||22.05%|
|Russell Mid/Small Blend Stock Index||11.00%|
Predicting year to year performance is uncertain, and an investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. But all the research and data on hand today suggests there should be growth potential for investors in the water sector for a number of years to come.
1 “Lights, Water, Motion.” Excerpted from The Megacommunity Way: Mastering Dynamic Challenges with Cross-Boundary Leadership, published as a strategy+business Reader by Booz Allen Hamilton, July 2007.
2 “A Clean Water Crisis.” National Georgraphic: environment.nationalgeographic.com/environment/freshwater/freshwater-crisis.
3 “How Drought on Mississippi River Impacts You.” National Geographic: news.nationalgeographic.com/news/2012/12/121207-nation-mississippi-river-drought-environment-economy.
4 “Issue Brief: Water.” Calvert Investments: www.calvert.com/sri-issue-water.html.