Water is the most important natural resource in the world. Considering its scarcity, it is not at all surprising that, although not treated as a commodity in the process of gold trading or oil trading, many investors and traders have long since started investing in water stocks and ETFs.
Some of the factors that make water a limited resource and, consequently, a potential promising investment, include the exponential increase in world population, global warming, and the increase in intensive farming, just to name a few.
Although approximately 80% of our planet is covered by water, only 1% can be used for drinking. According to the World Health Organization, one billion people lack access to drinking water and between 3 and 4 billion cannot rely on a sufficient and/or dependable water supply. Furthermore, according to the OECD, worldwide water demand is expected to increase by 55% between now and the year 2050, but at least two thirds of the world’ population might already be in a state of “water stress” by 2025. The United Nations forecast is even gloomier and in fact predicts that by 2035, our water use will increase by 85% due to energy demand.
Water is essential for every country in the world, but everyone manages it differently. In the past, water companies were publicly owned and managed to ensure that people had reasonably priced access to this essential resource. However, in many regions, water companies have gradually shifted to the private sector.
Some countries have embraced privatisation more than others. For example, the entire UK water market has been privatised, whereas other governments still manage most of their water resources. Some countries prefer to let private companies manage the entire network, while others prefer public-private partnerships. Understanding that each country follows a different regulatory system is as important as understanding the investment profile of individual stocks.
Water utilities are generally part of a stable and much less volatile sector. This is what makes them particularly suitable for long-term investors and position traders.
Another major benefit of water utilities is their abundant dividends. That is why investors should always pay close attention to stock dividend policies and calculate the dividend yield to identify whether a stock is overvalued or not. Read more about the best dividend stocks to invest in here.
There are multiple ways to invest in water. You can buy shares of companies that produce water-related equipment, such as pumps, meters and filters, invest in water utilities and environmental companies that clean, purify or distribute water. You can also trade (ETFs), CFDs and spread bets on the price movements of these assets. Read on to discover our different products.
Although the market offers a variety of water utility stocks from all over the world, investing in drinking water stocks should be thoroughly evaluated. Water companies are subject by nature to times of financial debt and, therefore, interest rates should also be carefully assessed. It is preferable to invest in companies that demonstrate a higher level of stability. Furthermore, when investing in a geographically diverse portfolio, traders should closely monitor exchange rates. Foreign currencies, such as the US dollar, the British pound, or the Chinese yuan can be subject to unpleasant depreciation, which is needed for the fund’s growth. Learn how to buy and sell shares in the stock market.
Instead of purchasing water shares outright at spot price, another way to invest in water is through CFD trading (contracts for difference). The advantage of CFDs is that traders can gain long or short exposure to share prices without necessarily having to purchase shares or ETFs. Instead, traders can speculate on the price movements of the underlying asset through opening a position. If the market moves in your favour, profits will ensue, but if the market moves in an opposing direction, then this will result in losses. To find out more about CFDs and how they work, read our article on “what is a contract for difference?”.
Investing in water ETFs could be a convenient way to start investing within the water industry with one single fund. Water ETFs work by holding shares in companies involved in water purification, pipeline, construction, and other related equipment. Investing in water ETFs has numerous benefits such as diversification, passive management, and low expenses. However, leveraged ETFs are complex financial instruments that carry significant risks. Certain leveraged ETFs are only considered appropriate for experienced traders. To learn more about ETF trading, read our guide on "what are exchange-traded funds".
With annual sales of £1.677 billion, Severn Trent is a large British utility company. It is traded on the London Stock Exchange (LSE) and is part of the FTSE 100 index. Severn Trent Water is one of the ten privatised water supply companies in England.
Market cap: $5.62 billion
P/E ratio: 35.52
Pennon Group plc is a British water utility and waste management company headquartered in Exeter, England. The company is listed on the LSE and is part of the FTSE 100 index. Eighty-three percent of the company’s profits come from its subsidiary, South West Water.
Market cap: $4.28 billion
P/E ratio: 36.74
United Utilities, the largest listed water company in the UK, was founded in 1995 following the merger of North Water and NORWEB. The group manages the regulated water and wastewater network in North-West England. Its shares are listed on the London Stock Exchange and on the FTSE 100 index.
Market cap: $ 5.70 billion
P/E ratio: 53.46
Veolia Environment is a French public service and utility company, listed on the Paris Stock Exchange and part of the CAC 40 index. The company supplies 100 million people with drinking water and 65 million people with wastewater services each year.
Market cap: $10.82 billion
P/E ratio: 76.79
Suez Environnement is a French company with presence on every continent, although its core activities are mostly concentrated in France. In fact, almost one-third of its revenue comes from France. The company specialises in water and waste management and provides water, waste and resource management solutions to millions of people and business worldwide.
Market cap: $7.71 billion
P/E ratio: N/A
American Water Works is a water utility company that operates in the United States and Canada. Most of American Water Works' services are in the hands of local subsidiaries that are regulated by the municipal drinking water and wastewater systems under contract. They also deliver water sanitation products and services to residential communities and commercial businesses.
Market cap: $25.60 billion
P/E ratio: 40.08
California Water Service Group is a holding company that manages water supply and distribution. The company provides regulated and non-regulated services to private companies and municipalities. The core of the business consists of the production, purchase, storage, treatment, testing, distribution and sale of water for various uses such as domestic, industrial, public, irrigation, and fire protection.
Market cap: $2.328 billion
P/E ratio: 57.12
Beijing Enterprises Water Group Ltd is a Hong Kong-based investment holding company that operates in three different sectors. This includes the construction and operation of sewage and reclaimed water treatment plants, the construction of seawater desalination plants and the provision of construction services for comprehensive renovation projects, and the distribution and sale of piped water and the provision of related services.
Market cap: $32.37 billion
P/E ratio: 6.59
China Water Affairs Group is a water supply company with headquarters in Hong Kong. The company’s main business is to build and operate urban water supply systems and sewage treatment plants in mainland China. It is one of the largest integrated water service providers in mainland China, operating in over 50 Chinese cities.
Market cap: $10.17 billion
P/E ratio: 6.21
China Everbright Water Ltd, a company specialising in wastewater treatment in mainland China, is listed on both the Hong Kong and Singapore stock exchanges. The company is mainly engaged in wastewater treatment, water supply, reusable water, wastewater source heat pumps, research and development of water environmental technologies and engineering construction.
Market cap: $1.38 billion
P/E ratio: 4.73
Lyxor World Water is an ETF that aims to replicate the performance of the SGI World Water index CW. The basket is used as a reference index specific to the water sector and reflects the performance of the 20 largest companies operating in the sector of water services, water infrastructure, and water treatment.
The Guggenheim S&P Global Water Index ETF is one of the largest existing ETFs thataims to replicate the S&P Global Water index, which provides exposure to 50 companies around the world involved in water-related businesses. The S&P Global Water index is comprised of 50 securities and is designed to provide a balanced representation from different segments of the water industry. These consist of the following two clusters: 25 water utility and infrastructure companies and 25 water equipment and material companies.
To start investing in water, you first need to decide whether you would prefer to spread bet, trade CFDs or invest directly into ETFs. Visit our guide on spread betting vs CFDs to decide the product most suited to your trading personality and overall goals.
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