Finally an investment idea

Some of you have contacted me (although commenting on my blog posts would be an alternative way, besides e-mail, to communicate with me) and shared your disappointment that I have yet to share an investment tip on Tacomob.  An Investment Tip from Tacomob

There is reason for that and I have shared it here.

I hear you (despite my hearing deterioratingat least that’s what my wife claims) and as I am here to pleaseyou my loyal readershere is an investment idea that I would like to share.

Don’t be disappointed (again) though, because it’s a very long-term investment and isn’t something for those of you who shun a bit of volatility.

This investment could almost be called “Investing in Yourself” and no, I don’t mean the run-of-the-mill-self-investments of learning continuously, eating healthily, and exercising regularly.

This investment is about what we all have in us (60% in average actually).

Do you know what I am referring to?  No?

Ok.  Let me ask another question: “Do you know what was Bruce Lee’s favourite drink?”

Wataaah!

Yes, that’s correct, Water!

The Case of Water 21 facts worth knowing:

Jump straight to fact 21, in case you are already convinced of the importance of water.

1) Water is an amazing substance made up of molecules, comprising two atoms of hydrogen and one of oxygen (hence H2O).

2) H2O is the most important greenhouse gas, helping the atmosphere to retain enough warmth to permit living things to thrive on what would otherwise be a frozen lifeless plant.

3) Unlike the eventual substitution of the world’s oil supplies as an energy source, there is no substitute for H2O.

4) There is no way to ‘create’ water artificially.  We have to do with the amount of water that we have.  It’s a finite but renewal resource.  We do “use water”, but we don’t “consume water”!  Water is not an exhaustible resource!

5) Ours is a water planet, the surface area covered by water is 70% while land only takes up 30%.

6) If every drop of water in the world was collected in a sphere, it would be just 1400 km in diameter and the rest of earth would look pretty naked. our water planet has actually very little water

7) The total amount of salt water is 97%.  Of the 3% of water that is not salty, about 69% is frozen either at the poles, in glaciers or in permafrost.  All living things, except those in the sea, have about 1% of the total to survive on.  And of the 1%, three quarters are used for agriculture.

In the past this has been sufficient, but things are changing with the ever growing human population.Water only 3% is drinkable

8) Fresh water is very unevenly distributed.  Among the water rich countries, only Brazil, Canada, Colombia, Congo, Indonesia, and Russia have an abundance of it.  China and India, with over a third of the world’s population between them, have less than 10% of its water.  Brazil actually has as much water as the entire Asian continent.

Well, are you convinced yet?  If yes, then jump straight to fact 21.  If not, do read on.

9) Oil is now cheaper than water.  Brent crude is currently trading around US $30 a barrel, meaning that it now costs about 19 cents a litre (an oil barrel is 159 litres).

How much is mineral water? Check it out in your local supermarket.  Ok, you might find a no-brand mineral water that is slightly cheaper.  Brands like Evian are definitely more expensive andwhat a shock to methe price range from the same retailer of the same Evian, though in different bottles and in pack of sixes, ranges from 58 cents/litre to 1.67$/litre.

Talk about deceiving the consumer!  There seems to be some potential to make money in mineral water.

10) By 2050, it is forecast that almost two thirds of the world’s population will be affected by water shortages.  Other studies say that this would already occur in 2025.

Update as of Feb 2016: latest studies confirm that over four billion people, or 66% of the people around the globe are facing severe water scarcity for at least one month of the year. 

11) A cow needs around 4,000 litres of water throughout its life.  Don’t blame the cows.  We humans need about 2.0 to 2.5 litres per day as well, which adds up to about 55,000 litresassuming an average age of 75and that is not even counting the fact that we might eat a piece of that cow in addition to vast amounts of other foods that require water to produce.

12) Water consumption by humans has increased nine times in volume since 1900.  At the current growth rate, demand will outstrip supplyby about 40%by 2030. By 2030 demand will outstrip supply by 40%

13) Climate change is predicted to heavily impact precipitation patterns across earth.  Certain areas will get wetter and other areas will get drier.  When and how huge the impact will be, nobody knows.  What is certain though, it’s very unlikely that the current uneven distribution will even out by itself.

14) Lots of water is required to produce energy.  Hydropower, obviously, could not exist without water.  Even nuclear power-related operations require 86 cbm of water per 1,000 GJ.  So does the promising electricity from solar thermal power (265 cbm of water per 1,000 GJ).

One exception: Electricity from wind energy: 0 cbm of water per 1,000 GJ (though I doubt this categorical ‘0’, since the production and the erection of the wind mill consumes water as well).

15) Storage of water is easy, but transport is very expensive (exactly the opposite of electricity). water transport is a challenge

16) Access to clean water is still not common.  About 800 million people lack access to an improved water supply and about 2.4 billion people lack access to “adequate” sanitation facilities (thereof 1.9 billion in Asia).  An improved water supply would dramatically reduce the spread of diseases as well as the time invested by women and children to collect their daily water from far-flung places.

17) Without proper water resource management, some of the worst battles in the near future may be over groundwater.  Water battles appear to be unavoidable in countries like Egypt or Pakistan.  Pakistan is currently offering agricultural lease land including military protection (in case of conflicts) in order to attract investors! the next conflicts might be over water

18) The world has quietly transitioned into a situation where water, not land, has emerged as the principal constraint on expanding food supplies.  Saudi Arabia for example has given up on trying to grow wheat due to lack of water and would be 100% dependent on wheat imports by 2016.

19) According to the United Nations, the world is going to need at least 30% more fresh water by 2030.  Where would this come from?  New water findings (they actually do occur “Scientists discover vast undersea freshwater reserves”) or desalination?

20) Despite its finiteness, we continue to pollute water like there is no tomorrow.  In developed countries, thousands of soluble chemical compounds are making their way into water bodies in trace concentrations.  Pharmaceuticals (from anti-inflammatories to antidepressants), personal-care products, detergents, pesticides, various hydrocarbonsthe list is long and growing.Sad state of water resources

In China, 80% of the major rivers have become so horribly polluted that they do not support any aquatic life at all at this point.  In India, it has been estimated that 75% of all surface water has been heavily contaminated by human or agricultural waste.

21) Water is deadly.  100% of all serial killers, rapists, and drug dealers have admitted to drinking water!  Water is the leading cause of drowning!  And 100% of all people exposed to water would die!

Ok, I admit that the last fact is not really a pro-argument for investing in water.

Nevertheless, from my perspective, the facts for the importance of water do by far outweigh the facts that don’t.

 

WATER IS RATHER IMPORTANT, BUT THEN

I dare say that water is the most important physical commodity of all time and that it is vastly under-priced.

Soon we would be faced with peak water and the only arguable point is when this would occur.  So, we need new water solutions, one way or the other.

We must change the way in which we use water, doing more with less.  Unfortunately, we don’t have a great track record in increasing resource productivity.

I sometimes have the impression that freshwater conservation is perceived only as a concern by middle-aged accountants with a passion for fishingthough it should not be.

For me, one way would be to finally abandon the narrow-mindedness of our previous generations and to start acting as “one humankind” with one common heartbeat.  But then, perhaps that would be asking too much.

 

WHY INCLUDE WATER IN YOUR PORTFOLIOwater enables life on earth

Although it might seem that water stocks are boring and that they grow slowly, it’s clearly a long term play.  Especially since this industry is supported by the population growth in emerging markets as well as the total global population.

The need for more potable water for irrigation in emerging economies is undeniable, as more people need to eat, drink, and to use this element: a first-hand necessity in a world where drought is continuously in focus.

Globally, $600 billion is spent each year on managing water, a sum comparable to what is spent on producing natural gas.  And this does not include expenditure in other sectorsfrom agriculture to manufacturingthat influences the intensity of water use.

As industrial costs keeps rising (electricity bills, labor force, etc.), the cost of processing and distributing water would also increase, impacting the final product prices.

The good news is that the need for water has not translated yet in high valuations of “water stocks”.

Not yet, because the value of water is simply not appreciated properly, neither by the investors nor by the consumers (just check your utilities bills and see how little you pay for water compared to electricity or heating).

There is a high probability that early investors could capitalize on that day in the near future when the world realizes that fresh water, our most precious resource, is more valuable than oil and water develops into a Megatrend.

Like in many other sectors, it is difficult to find the successful companies amidst all the players in the water field.  Hence, I prefer not to sweat (my precious water!) over trying to find the needle in the needle stack; instead I just buy the entire needle stackvia an ETF.

 

ETF PLAY

There are many actively managed mutual funds/unit trusts investing in the water theme.  Nevertheless, readers of Tacomob know that I favour low-cost Index-ETFs over costly managed funds.

Taking into account that water is not yet tradeable as a priced commodity that can be purchased on the future market, here are three ETFs that we can invest in:

These Exchange Traded Funds are one of the most efficient tools to use for accessing the water sector, since it reduces the risk of investing in single companies and allows us to still have exposure to this valuable industry.

ETF 1: PowerShares Water Resources (Ticker: PHO), an American domestic play that looks to invest around 90% of its total assets into the underlying components of the Nasdaq OMX US Water Index, focusing on small and mid-cap companies.  It returned  38.3% over the last three years, has a Total Expense Ratio (TER) of 0.6% p.a., and about US $820 mio Assets Under Management (AUM).

This fund is spread out over a wide range of water-related companies that specialize in water treatment, utilities, pipe and pump manufacturing.  If we were to take into account the urgent need for upgrading America’s ageing water infrastructure, this ETF would surely rise in the long term.

ETF 2: PowerShares Global Water (Ticker: PIO) is focused on international markets.  It returned 53.6% over the last three years and has a TER of 0.76% p.a.  AUM: US $270 mio.

This ETF attempts to place approximately 90% of its assets into tracking the underlying securities of the Nasdaq OMX Global Water Index.  It basically consists of foreign water infrastructure stocks that focus on conserving and purifying water for residential, commercial, and industrial buildings.

ETF 3: Lyxor ETF World Water (Ticker: ISIN FR0010527275 / WKN LYX0CA) is focused on mirroring the World Water Index and denominated in Euro.  It returned 76.5% over the last three years and has a TER of 0.6% p.a.  AUM: Euro 260 mio.

 

THE ETHICAL ASPECT check out your water footrpint

We must remind ourselves that water is not just an economic good; it’s also important for cultural, social, and environmental values.

Which raises the question: “Is it ethical to make profits from the imminent water crisis?”

Investing in water companies provide them indirectly with the capital to expand and to do more to manage and distribute our finite water resources to as many people as possible.

In a nutshell, investing in water companies does more good than harm.

Last but not least, I’m long in water shortage.

 

“We will never know the true value of water until the well runs dry.” — Benjamin Franklin (1746)

“Whiskey’s for drinking.  Water’s for fighting.” — Mark Twain

“Water is H2O, hydrogen two parts, oxygen one, but there is also a third thing that makes it water and nobody knows what that is.” — D.H. Lawrence

I love water

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