BLOG: Water - the driving force of nature

Written by Natalie Tuck
22/03/17

Famed for his painting of the Mona Lisa, Leonardo da Vinci was also fascinated with water and once claimed “water is the driving force of all nature”.

Da Vinci was right, and water is absolutely necessary for survival, more so than any other resource, but the world is dealing with a crisis due to the scarcity of fresh water. Less than 1 per cent of the world’s water is available for use, with the rest being saltwater, polluted, in polar ice caps or otherwise unavailable. The access to the freshwater we do have, however, is threatened by pollution and depleting aquifers.

That’s why today, 22 March, is reserved for World Water Day. Launched by the United Nations in 1993, the day looks to raise awareness about the need for fresh water, and this year’s theme focuses on wastewater.

It is also a chance for pension funds to review their portfolios and look at how they can support the drive for creating greater access to freshwater whilst meeting their member’s needs. Despite the crisis we are facing, demand for clean water is growing rapidly.

KBI Global Investors chief economist Eoin Fahy notes that there is a “huge need for infrastructure spend in this area” with McKinsey estimating that $12trn will be needed by 2030. This is roughly around the same amount needed for energy and telecoms but Fahy notes that these two sectors receive much more investor attention.

However, with governments toughening up on regulation (Safe Drinking Water Act in the USA, Water Framework Directive in the EU and China increasing water standards) insisting on higher standards for water and wastewater service, there are many reasons and opportunities to invest in this area.

“Water stocks include utilities (the obvious example) but also companies that we classify as technology stocks or infrastructure stocks,” Fahy explains. “They may make pipes, test water quality, manage water networks, manufacture giant pumps or valves, scan pipes for weaknesses (imminent leaks) or purify water supplies in various ways, just to name a few examples. And they are located right around the world, from the US and Europe to smaller emerging markets.”

He adds that water stocks tend to be smaller and less well-researched than the kind of companies held in most equity portfolios, which to an investor is a good thing as it gives more opportunity to generate outperformance.

For KBI Global Investors, investing in water has been a successful strategy up to date. Since inception in December 2000, the strategy has outperformed the MSCI World Index by 3.1 per cent per annum gross (Figures up to end December 2016). It has also outperformed the Index in 12 out of the 16 calendar years.

For more information on World Water Day, click here

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