Taking “Stock” in the Water Market

There’s been a lot of talk recently about investing in water-related stocks.

by James Laughlin, Editor

There’s been a lot of talk recently about investing in water-related stocks. I have to admit I’ve been playing with water stocks for several years now, and I’m happy to report I haven’t lost a dime. Of course, emphasis here is on “playing.”

Several years ago I developed a list of water companies that interested me with the goal of investing $5000 in the market. I then started watching the daily prices as they fluctuated up and down. Some companies did well, others tumbled. In general, during the early parts of this decade their value as a group stayed flat or grew by only a few percentage points. Lately they’ve done much better, with a dramatic up-tick in the past two years.

One slight problem - while I made the list and had the goal of investing the money, I never actually got around to buying the stock.

Recently I’ve begun more in-depth researching and have bought a few shares of one publicly traded water utility company and an equipment provider. I’ve been told that buying stock of individual companies is the most difficult and riskiest way to play the stock market. I understand the reasoning, but I would argue that picking companies I know and like - based on my experience in the industry and what I expect to happen over the next few years − is a great way to keep me involved in my investments.

For those who want a more secure approach to investing in water, over the past two years there has been an explosion in the number of water-related stock indexes and Exchange Traded Funds (ETFs) targeting this market. We actually have a WaterWorld Market Index on our website, www.waterworld.com, toward the bottom of the page. It includes about a dozen water-related companies.

Some of the water-specific ETFs include PowerShares Water Resources Portfolio (PHO); PowerShares Global Water Portfolio (PIO); First Trust ISE Water Index (FIW); and the Claymore S&P Global Water ETF (CGW).

The problem I have with water-related indexes and associated funds is how you decide what is “water” - and who does the picking. As I see the market, you have publicly traded water utilities on one side and equipment providers on the other. However, nothing is all that clear these days. Many of the major players in the water industry are owned by multi-national, diversified companies serving a lot of industries. For example, our WaterWorld Market index includes Danaher, the owner of Hach Co. While Danaher is an active participant in the water industry, it also manufactures medical technology, electrical test equipment and hand tools, among other things.

That’s not to say the water funds aren’t a good investment choice. Most have out-performed the general market over the past two years. One thing to keep in mind is that not all funds are created equal. While water utility stocks have been considered a relatively stable investment, some of the new water funds are “higher flying” and can be more volatile, albeit with the possibility of higher returns. Do your own research before investing.

If you’re into picking individual companies, then go with what you know. I see a huge demand over the next few years for equipment and systems needed for repairing and/or replacing aging infrastructure. If you see your utility buying large amounts of say, trenchless pipe repair systems, then buying the stock of those companies might not be a bad investment.

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