over 3 years ago • 2 mins
As the global population grows ever larger and wealthier, demand for fresh, clean water is growing fast – leading to some interesting long-term investing opportunities.
It takes 15,000 liters of water to produce a kilogram of beef and an astonishing 12 liters for a single almond. So, as the world grows richer and eats better, the United Nations estimates that the global water supply will fall 40% short of demand by the end of the decade.
For some investors this dramatic discrepancy between supply and demand looks like an opportunity to profit – after all, capitalism is nothing if not amoral 😀
Among the most high profile is Michael Burry, the doctor turned hedge fund manager portrayed by Christian Bale in The Big Short. As you many remember, after Burry cleans up after correctly predicting the subprime mortgage crisis, the movie ends – rather ominously – with this message:
If you buy into the thesis that water scarcity is on the horizon – which, sitting in damp, autumnal London, can be hard to believe – there are plenty of ways to invest.
As always, exchange traded funds (ETFs) offer one of the simplest and cheapest paths. There are many water-focused funds which track companies providing, pumping, or purifying the stuff – like the Invesco S&P Global Water Index ETF or the First Trust Water ETF.
These ETFs buy stocks of water utilities, well-drilling firms, pump producers, and so on – and have climbed faster than the rest of the market over the past two decades.
For a heftier annual fee, you could pump your money into an actively managed water-focused fund, where a human fund manager selects stocks they think will outperform the market. One example is the AllianzGI Global Water Fund, although it boasts an annual management fee greater than 2% – roughly four times more than the ETFs’ charges. Allianz, however, argues that its active approach can fuel money to the companies best placed to develop tech that will actually improve the world’s water needs.
A third approach is to copy Michael Burry and buy up tracts of well irrigated farmland.
“Food is the way to invest in water,” Burry told New York Magazine in 2015. “That is, grow food in water-rich areas and transport it for sale in water-poor areas. This is the method for redistributing water that is least contentious, and ultimately it can be profitable.”
We’ll drink to that, Michael 🚰
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