ETF WEEKLY REPORT
October 16th 2021
I – Global information and fundamental analysis about water ETF
An exchange traded fund (ETF) is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index. In this report, we’ll focus on the water.
As water is an increasingly scarce resource, it makes sense to invest in this resource as the stakes around water are becoming increasingly important, both politically and economically.
Chart 1 : Global bottled water market size
Source : grandviewresearch
The global water and wastewater treatment market was worth USD 265 billion in 2018 and is expected to reach USD 456 billion by 2026, growing at a CAGR of 7.1%. Wastewater treatment is essential to meet the water needs of the commercial and residential sectors, as well as the industrial and agricultural sectors. The challenges are to collect, distribute and allow the use of water on the one hand; but also to recover wastewater, purify it and discharge it back into the natural environment while minimising the environmental impact.
Water is a very important commodity. Nevertheless, only a tiny fraction (0.25%) of the water on the planet Earth is exploitable or drinkable for human beings because 99.75% of the earth’s water is composed of salt water, glaciers, permanent snow or polluted water (mainly waste water).
Today, this market is threatened by the urbanisation of our societies, by climate change and by the demographic growth of our planet.
Our worldwide water consumption has increased ninefold since the beginning of the 20th century and this is only the beginning, because in 2050, the world population will approach 10 billion inhabitants.
Chart 2 : Water consumption
Source : ourworldindata
Want to become a water trader? Between 2013 and 2018, the value of water stocks jumped by 44%. Between storage, treatment, transport and distribution, the water supply chain involves many players. Among the companies involved in the water cycle that are listed on the stock market are:
- Veolia Environnement,
- Suez Environnement,
- Xylem Inc,
- China Water Affairs Group Ltd
- Danaher Corp.
2 – ETF World Water Lyxor
This ETF replicates the World Water Index (WOWAX), which tracks the global water industry. The companies in the index derive the majority of their turnover from water services, water infrastructure (suppliers of pipes, pumps, valves and meters etc.) or water treatment (suppliers of products and technologies for water disinfection, filtration and desalination).
Chart 3 : funds characteristics
Source : Lyxor
Chart 4 : Funds performance
Source : Lyxor
We can see that there is an underlying upward trend and that the dollar cost average method could therefore be a good long-term investment method.
Chart 5 : Top holdings
Source : Lyxor
To conclude, we think investing in water is a good idea on a long term view. With a growing population, water is an issue for the coming years. The whole industry around treatment and production is concerned by these issues. The price of water has increased considerably in recent years. The restaurant and bar industry has also renewed itself and now offers « top of the range » waters. All these ideas lead us to believe that investing in water ETFs is a good opportunity.