How To Invest In Water Commodities

One of the key fundamental resources humans need for survival is water. This makes it a vital resource, meaning that it can also be a source of profit. 

How To Invest In Water Commodities?

If you didn’t already know, water is a viable source for portfolio diversification, and like any other commodity such as a precious metal or oil, it happens to be scary in our current day and age which means it carries a price tag.

And with any scarce resource, this situation creates an opportunity from a financial perspective.

As the most important resource on Earth, here are the best ways to diversify your portfolio by acquiring a water-related asset and investment.

Water Investments

Investment in water is a simple process and is easily understood. As water is one of the most important resources on Earth and will likely become a lot scarier in the future, it can be monetized.

Although around 70% of the earth’s surface is covered in water, over 97% percent of that water is salt water which is unable to be used for drinking, industrial use, or crop irrigation.

With only 3% of the remaining water qualifying as a water resource, only around 1% is now readily available for human consumption.

Worldwide water shortages have become commonplace due to rapid and increasing agricultural use, as well as many areas on the planet experiencing a lack of H2O, especially in warmer climates such as India, Egypt, Pakistan, Mexico, most of Africa, and some of the states in the US.

Pollution is another factor and there are certain areas, such as the Dead Zone off the Gulf Coast which shows fertilizer runoff, an additive used in unleaded gasoline that is polluting world water from States California to Maryland.

This further restricts the pool of water that we can drink.

Water Investment Indexes

If you’re looking to invest in a water index, these are some of the most popular options that will track water-related investment opportunities.

  • The Dow Jones US Water Index contains around 29 stocks and is a barometer that includes a number of international and domestic businesses that deal with water, with a minimum market capitalization of around $150 million.
  • The S&P Global Water Index started in 2001 and includes 50 companies around the world that deal with either water utilities or infrastructure and water equipment and their materials.
  • The ISE Clean Edge Water Index was launched in 2000 and represents several water businesses that include distribution, flow technology, water filtration, and various other water-related Solutions. This contains 35 stocks.
  • The S&P 1500 Water Utilities Index comprises just two companies and is a subsector of the Standard & Poor’s utility index.

You can also view the water industry from an international point of view by way of the Global Sustainable Water Index which focuses on emerging companies, as well as established ones that earn over 50% of their income from water services and products.

How To Invest In Water Securities?

How To Invest In Water Securities

The best place to start is to look for firms that are open for profit for any type of water-related business.

You will find these with beverage providers, water treatment and purification firms, water equipment makers, utilities, and any company that will provide a pump or valve unit.

Taking a look at the holdings of these water providers gives you an easy start for looking for long-term investment opportunities.

Bottled water might be one of the biggest growing sectors in the market from an international perspective, and is worth researching.

As demand is rising in some of the bigger nations such as China and Mexico, this is mostly down to a spike in US consumer demand.

From 2010 to 2020, consumption of bottled water increased by around 61%, with Americans drinking around 45 gallons of water a year.

With over 2.3 billion people living in a water-stressed company, which means that they use up more than 25% of their water resources a year, over 700 million people could be displaced by 2030.

If you don’t see yourself as a stock picker, then you might want to consider an ETF or mutual fund which provides plenty of opportunities to seek out water investment.

For example, the ETF Invesco Water Resource Portfolio is currently the largest with 38 Holdings that focus on mid and smaller companies.

However,  based on the popularity of this resource there are plenty of new alternatives that are emerging in this market.

Can You Invest In Water As A Commodity?

You can go through the Chicago Mercantile Exchange which has tradable water options that are specifically tied to the prices of water in California.

This allows investors to place a bet on any potential future value of the NASDAQ Veles California Water Index, which basically means that you can get on the future price of water.

Water stocks or another option that you can go with, and for any business that has close links with water irrigation, water treatments, Utilities, or any other type of water-related feature, you can buy stock of individual companies, or go with a mutual fund or ETF, that is a lot more focused on high exposure to water stocks.

Final Thoughts

If one of the major trends of the 21st century is the change to our climate and the changes to how we use our resources, you will likely see an upswing in demands for these types of investments, especially those that look to profit from the need for this vital human resource.

If we see this trend continuing, then this is important news for investors as you can expect to see even more Investments with the provision that new exposure to this precious commodity will be made, with firms providing more options for the marketplace.

With the many various ways to include a water investment into your portfolio, the simplest piece of advice would be to do your research and see what kind of investment works best for you.

As there are opportunities in water commodities, stocks in companies, or placing your money in an ETF or mutual funds, the opportunities are endless but also growing.

Luke Baldwin
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