The United Nations estimate that the demand for water will increase by 50% by 2030 (compared to 2016), due in particular to the increase in the world population, the increase in the needs of agriculture and industry, energy consumption, etc. Prospects that arouse the desires of many companies, whether they are present in the water distribution and sanitation sector, or in technologies related to the measurement of water quality.
Some of these companies are listed on the stock exchange, such as Veolia, Severn Trent, American Water, Xylem, Evoque Water Technologies or Ecolab. Their market capitalizations often amount to tens of billions of dollars.
A sign of the economic and financial importance of this sector, stock market indices centered on the theme of water have been set up in recent years. Among the best known are the S&P Global Water Index and the MSCI Global Sustainable Water Index, both composed of the most “liquid” stocks in the industry.
These indices now allow the financial industry to offer trackers (exchange-traded funds, ETFs), replicating almost identically the performance of these indices. Note that ETFs are continuously traded index funds. It is therefore possible to buy and resell them in real time, like stocks.
Risk of change
Another advantage of these funds, which are attracting more and more savers: they have much lower management fees than traditional investment funds. These financial products, which are easy to use, thus make it possible to invest at a lower cost, while spreading the risk taken over a large number of stocks.
At present, however, less than a dozen ETFs specializing in the theme of water are accessible to savers; some of them being listed on American stock exchanges, and therefore denominated in dollars. In France, you can invest through a securities account giving access to foreign stock markets. Most online brokers now offer this service to their retail clients.
However, a French investor must be aware that there is an exchange risk, linked to the evolution of the greenback. Indeed, the capital invested in such ETFs is exposed to a risk of depreciation of the dollar against the euro, throughout the duration of the investment.
Beyond this currency effect, the main risk incurred by the saver is, of course, linked to the development of companies in the sector on the financial markets. Despite the stock market correction of recent weeks, caused by the war in Ukraine, “The theme of water still offers attractive investment opportunities given the growth potential of the sector in the years to come”, says Aanand Venkatramanan, ETF manager at Legal & General Investment Management, a management company.
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