Daily Gains Letter

One Basic Strategy for Making Money from Water

By for Daily Gains Letter |

One Basic Strategy for Making Money from WaterClimate change has emerged to become a major issue as society progresses, but remember: in the world of investing, where there are troubles, there are opportunities. Governments around the world are trying to figure out ways to reduce their impact on the environment, and a significant amount of research is being conducted on possible effects.

In an interview with the Wall Street Journal, the head of the International Monetary Fund (IMF), Christine Lagarde, said regarding climate change that “it’s a massive risk and it’s a huge opportunity, and for the moment we are ignoring both risk and opportunities associated with it.” (Source: Wessel, D., “En Grande!,” Wall Street Journal, May 17, 2013.)

All of this leads to the ultimate question: how does one actually invest in the environment or climate change?

As the climate is changing, one of the predictions is that fresh and/or drinking water will be scarce, because 70% of all fresh water on Earth consists of snow and ice. As the Earth’s temperature is warming, this fresh water is melting into the sea and mixing in with salt water. (Source: Mcintyre, N., “How will climate change impact on fresh water security,” Guardian, December 21, 2012, last accessed May 23, 2013.)

Effects on water hit close to home, according to a study conducted by the Columbia University Water Center, Veolia Water (a water service provider) and Growing Blue (a group consisting of non-government organizations [NGOs], water companies, industry groups, and international organizations) According to the study, major cities—namely New York City, Los Angeles, and San Diego—can face water shortages due to climate change. The study also indicated states like Illinois, Minnesota, and Nebraska could face a similar situation. (Source: Leven, R., “Major U.S. Cities Are at Risk for Climate-Related Water Shortage: Report,” Bloomberg, May 16, 2013.)

Considering the facts, one thing appears certain: fresh water may be the thing to invest in.

Sadly, even with financial innovation, there isn’t any investment instrument that lets investors invest directly into fresh water, be it lakes, rivers, or rain; however, there are certainly some exchange-traded funds (ETFs) that may let investors profit as fresh/drinking water becomes a scarce commodity.

Consider looking at PowerShares Global Water (NYSEArca/PIO). This ETF invests in companies that build products that are used to preserve and sanitize water for businesses, homes, and industries. (Source: “PowerShares Global Water Portfolio,” PowerShares web site, last accessed May 22, 2013.) (Please note that this is not a recommendation to buy, but just a mere example of what kind of investment investors should seek.)

The main reason for looking at these kinds of investments is that as fresh water becomes scarce, companies that are finding new ways of saving or purifying water that can’t otherwise be used will be in high demand.

All this said, investors need to keep in mind that climate change is a very long-term concept; the companies involved in producing products or providing services related to climate change aren’t immune to volatility in the stock markets in the short term. Investors need to constantly adjust their portfolio to achieve their long-term portfolio goals.

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