Access to water does not pose a challenge for many people in their daily lives as we drink a lot of it especially up here in the relatively dry mountains of Colorado. We bathe, wash our dishes and clothes and prepare meals with water. A lot of it.  Water may be the ultimate commodity as we simply cannot survive without it.

It is so important that there are battles across states with regard to “ownership” and rights to rivers sometimes hundreds of miles away. The costs are high to be able to maintain a clean water supply for our communities as infrastructure needs are estimated in the billions. In countries across the globe potable water is a dream as the reality is much more dire.

I am currently reading, “The Big Thirst-The Secret Life and Turbulent Future of Water” by Charles Fishman who provides amazing statistics and even more amazing stories how we take for granted the water that sustains us. With local abundance or shortages across the country and globe, the attitude toward water can be highly attributed to current circumstances.

We wonder if the attitude of plenty is partially due to the price of water itself. A lot of people will pay many times the price of the tap water for a bottle of water but if asked to pay more for water on a monthly basis many would protest. Would a human sustenance price combined with a market mechanism for “excess” water help alleviate the strain on the water system?

Given the seriousness of the water issues facing the nation and the globe, it does come at somewhat of a surprise that there are only a handful of mutual funds and exchange traded funds that invest in companies focused to some degree on water.

One such fund is the Calvert Global Water Fund (CFWAX) with about $549 million in assets. According to its prospectus, “The Fund normally invests at least 80% of its net assets in equity securities of U.S. and non-U.S. companies whose main business is in the water sector or that are significantly involved in water-related services or technologies.”

In some ways, this fund covers a lot of ground as they hold investments in water treatment, engineering, filtration, environmental controls, water-related equipment, water and waste water services, and water utilities.

Given the fund’s mandate, it does make sense that a lot of the companies fall into the industrial and water utility category with industrial concerns holding close to 67% across various sub-sectors. This could cause under-performance during a time when this sector does poorly in general.

The fund has not kept up with the S&P 500 over the last year but has beaten the Natural resources index which actually has not been too difficult given the horrible environment for commodities and commodity producers. The 1.86% fee is also something to take into consideration as that is fairly high for access to publicly traded securities even if they are within a reasonably tight mandate.

A passive investment in an ETF such as Powershares Water Resources (PHO) has beaten the Calvert Fund by a decent margin with less fee and turnover. PHO also has a heavy weight to industrial companies but does provide the investor exposure to the water theme so prior to an investment among other items in the due diligence process, check your other funds for over weight by industry or company.

We listed two funds for review but are the choices limited to the publicly traded space or can a more holistic approach help achieve your risk reduction goals and increase your firms opportunity set?

We do believe that the answer is yes but that it pays to step back and appreciate the integral part water plays in all of our existence from farming to manufacturing and eventually to our health. Given the inter-connectivity, it makes sense to us, to potentially incorporate  areas of the investment world that are not always the most traditional, but could be the most valuable.

Water makes its way through the river system and ultimately touches farmland and forests as well. Knowing waters importance, it would be reasonable to invest in river and watershed preservation as well as farming that promotes healthy soil to make best use of this critical resource.

The mechanisms can take the form of private and public partnerships and some are funds that invest in micro loans or private equity to help alleviate the insatiable thirst for water.

As we move forward in the capital markets in the way we view traditional asset allocation, there will be exciting opportunities to expand your portfolio and to enhance profitability potential in the US and globally for decades.


Tom Koehler-CIO

“Socially Responsible and Impact Investments represent a complex asset class and while we covered a small amount, there is a lot more information needed prior to making an investment decision. Let us know if we can provide more information to help in that process.”