The Trillion Dollar Commodity Investment You Are Missing

When investors think of commodities, barrels of oil or bars of gold typically come to mind, but there are plenty of other investable assets that many overlook. One of the most basic needs for the sustainability of human life is water, and it is quickly becoming a commodity that is presenting as a long-term buy. Not only does water hold advantages over a number of other commodities, but the industry will only become more demanded and valuable as the world population continues to soar [for more water news and analysis subscribe to our free newsletter].

The Water Advantage

Though water is not thought of as a standard commodity, this asset touts a number of advantages over some of its peers. For starters, water is the most inelastic commodity in the world. People can lower their use of oil or cooking gas, but we all need water to live. There will never be a point in history where there is a more vital commodity than water.

Secondly, due to its unwavering demand, water does not deal with the cyclical wanes and woes that the average commodity sees. While many traders look to play off the somewhat patterned nature of certain hard assets, retail investors are left out to dry, as a number of commodities prove to be difficult long-term plays. But water avoids that fallacy and makes a strong case for why it could be included as a part of a longer strategy [see also The Ten Commandments of Commodity Investing].

Water InvestingWhy Water Is a Sound Investment

Water is shaping up to be a strong opportunity in the coming years. The U.S. alone needs around $1 trillion in water infrastructure improvements as the nation currently loses 1.7 trillion gallons annually due to leaks and water main breaks. With a rapidly aging and failing infrastructure, there is plenty of work and opportunity in the sector, and that is just in the U.S.

Emerging markets like China and India are seeing unmatched population growth and will need to rapidly develop a larger network to keep up with their urbanization. “By 2025, two-thirds of the world population will experience water stress” writes Rachel Koning Beals. With the world population expected to pass 8 billion by 2030 and 9 billion by 2050, that water stress may only continue to grow.

The S&P Global Water Index returned a handsome 21% last year compared to gains of 16% for the S&P 500. As the need for more water infrastructure and treatment facilities grows, so too can the gains of companies and funds linked to the industry. This brings up the question of how to actually invest in water; while it may sound obscure, there are a number of options investors can utilize [see also How To Lose Money Investing In Commodities].

Investing in Water

Below, we outline two strong options for adding water exposure to your portfolio.

  • Water Resource Portfolio (PHO): This PowerShares ETF is home to just under $900 million in assets and focuses on companies that create products designed to conserve and purify water for homes, businesses and industries. PHO will likely be a better play for those looking to get in on the consumer side of the segment as opposed to infrastructure. Note that the fund also focuses on U.S. companies as opposed to looking overseas.
  • S&P Global Water Index ETF (CGW): Though the fund has just over $200 million in assets, its takes a much different approach to water investing. CGW will get investors in on the production and infrastructure side of the equation with over 60% of its holdings based outside of the U.S., looking to tap into the global market.

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Disclosure: No positions at time of writing.

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