Water Investments: Types, Benefits and Risks Involved

Most of the planet's surface is covered by water, which also makes up the majority of the human body. However, its widespread use can be misleading.

 

According to the US Bureau of Reclamation, freshwater makes up only around 3% of the world's water. Fresh water that isn't frozen in glaciers, contaminated, or too expensive to remove from the earth makes up only around 0.5% of the Earth's total water.

 

A market with practically limitless demand and limited supply can be an appealing investment opportunity. There are numerous water stocks to choose from, including utilities, filtration firms, and manufacturers of pumps and pipes used to transport water.

 

What is Water Investments?

 

According to research, a 50% increase in renewable energy in the food and beverage industry could reduce water consumption by 60%.

 

Despite the obvious need for safe and accessible water sources, there are significant financing shortages for water infrastructure, with estimates ranging from $6.7 trillion by 2030 to $22.6 trillion by 2050, according to the Financial Times.

 

Water investments are made to assist economic and social development by managing, developing, and utilising water resources. These investments are undertaken in a variety of sectors, including agriculture, industry, and municipal services.

 

Water investments are crucial to ensure the sustainable management and growth of water resources. They contribute to the improvement of water infrastructure, encourage sustainable water usage, and foster economic growth and social development.

 

Water exchange-traded funds (ETFs) are professionally managed and enable investors to invest in the water industry without having to select and evaluate each company individually. These ETFs invest in water-related industries such as utilities, infrastructure, and treatment organizations.

 

The investment argument for water is straightforward: water is one of the most valuable resources, and it is projected to become increasingly scarce. Water covers around 70% of the earth's surface, with saltwater accounting for more than 97%. Saltwater cannot be utilized for drinking, crop irrigation, or most industrial applications. Only around 1% of the world's remaining water resources are available for human consumption.

 

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Types of Water Investments

 

As an investor, you have a lot of options for where to put your money. It’s important to weigh types of investments carefully.

 

Investments are generally bucketed into three major categories: stocks, bonds and cash equivalents. There are many different types of investments within each bucket.

 

1. Agricultural Water Investments

 

Agricultural water investments include irrigation infrastructure, storage facilities, and water management technology to enhance agricultural production. These investments are critical for food security and helping farmers adjust to shifting weather patterns and drought conditions.

 

2. Industrial Water Investments

 

Industrial water investments assist industrial production by investing in infrastructure for water treatment and management. This type of investment is critical for ensuring that enterprises have access to consistent, high-quality water resources, which can assist to cut costs and boost efficiency.

 

3. Municipal Water Investments

 

Municipal water investments include public infrastructure including treatment facilities, distribution networks, and wastewater management systems. This type of investment is critical to ensuring that people have safe and clean water for drinking, cooking, and sanitation.

 

4. Invesco Water Resources ETF (PHO)

 

This ETF, which has an expense ratio of 0.60%, tracks the investment performance of the Nasdaq OMX U.S. Water Index. As of January 2024, its assets under management (AUM) were approximately $1.89 billion. The PHO ETF primarily invests in shares of water-related firms, with an emphasis on sustainability and resource management.

 

5. First Trust Water ETF (FIW)

 

This ETF focusses on companies involved in the potable and wastewater industries. FIW ETF has a 0.53% cost ratio and an AUM of around $1.48 billion. The ETF follows the price and yield of the ISE Clean Edge Water Index.

 

Pros and Risks of Water Investments

 

Investing can be intimidating for many individuals because there are so many alternatives and it can be difficult to determine which investments are best for your portfolio. 

 

Some of the major pros being offered in investing in water investments are- 

 

1. Financial Benefits

 

Water investments can give financial benefits to investors, such as consistent returns and long-term capital appreciation. As demand for water grows, the value of water assets is projected to climb, making them an appealing alternative for investors.

 

2. Social and Environmental Benefits

 

Water investments can have major social and environmental advantages, such as increasing access to clean water, lowering pollution levels, and supporting sustainable water management practices. These benefits can help both the areas where water investments are made and the environment as a whole.

 

3. Long-Term Benefits

 

Water investments can bring long-term advantages by encouraging sustainable water management practices, thereby ensuring that water supplies are available for future generations. This can assist to lessen the risk of water scarcity and guarantee that people have access to clean, safe water for many years to come.

 

Some of the major risks  in investing in water investments are-

 

1. Regulatory Risks

 

Water investments are exposed to regulatory risks, such as changes in water policy or laws, which can have an impact on their value.Investors should be aware of the regulatory environment in which they are investing and stay current on any changes that may affect their investments.

 

2. Climate risks

 

Climate change can have a considerable impact on water supplies by altering weather patterns and increasing the frequency and severity of droughts and floods. Climate hazards may have an impact on water assets, increasing their volatility and risk.

 

3. Technological Risks

 

Water investments may be vulnerable to technological risks, such as the failure of water treatment systems or the development of new technologies that could render present investments obsolete. Before making an investment, investors should be aware of these dangers and carefully evaluate the technical landscape.

 

Also Read | Using Financial Analytics for Personal Investment

 

Conclusion

 

Water investments are made to assist economic and social development by managing, developing, and utilizing water resources. They are significant because water is a vital resource that sustains life and propels economic growth, and investment in water may assist secure its long-term management and development.

 

Investors should examine the quantity and quality of water resources in the region where they plan to invest, the region's economic and political stability, the regulatory environment controlling water use and management, and the possible influence of climate change on water resources. They should also carefully consider the many forms of water investments and investment techniques accessible to them to ensure the success of their investments while also contributing to the long-term development of water resources.

 

Investing in water is critical to ensuring long-term management and growth of water resources. Water investments can bring financial, social, and environmental advantages, but they can carry hazards.

 

Investors should carefully analyse the types of water investments, investment methods, and aspects to consider when making water-related investments in order to assure investment success while also contributing to the sustainable development of water resources.