HardAssetsInvestor

Written by Julian Murdoch  |

February 04, 2009

Water Showdown

Details

Infrastructure is a hot topic with a new administration in place. So where does water fit in?

• Disparate performance in water ETFs
• Construction conundrums
• The dollar connection

We first talked about water as we were heading into what we thought was going to be a banner year (2008). Back then, we didn't even know if Obama would make a solid run for the presidency, much less that he'd be elected.

With Obama now in place and a huge focus developing on infrastructure development, attention has turned to water companies once again, so let's revisit the main story here. Let's start with some sobering (or, for investors, compelling) facts from the UN.

• Only one-half of 1 percent of the water in the world can be used by people.
• Over $650 billion is expected to be invested in water infrastructure in the next 20 years, and the industry is already a $420 billion market.
• Basic sanitation (clean water) in the developing world is only half that of the developed world.
• Even though we only drink a liter or so a day from our taps, the average human needs access to 20 to 50 liters a day for basic needs.
• Up to 40% of clean water disappears due to poor or degraded infrastructure.

All that points to a tremendous opportunity. In the U.S., the story may be even more compelling, with a Democratic administration talking big about infrastructure development and the likelihood of a re-empowered EPA.

The Contenders

The unfortunate news for a commodity investor is that even though water meets most of the classic definitions of a commodity, it's not traded. You can't buy water futures, and there's no direct way to invest in water itself, which means there's no option but the pick-and-shovel play.

The good news is that there are four ETFs tracking these buy-the-cow companies.

It's plain to see that there are indeed real differences in performance of the four ETFs, and as with any index, performance variations are due almost entirely to construction.