The United Nations’ Food and Agriculture Organization (FAO) made a “splash” in the press yesterday; with a statement it released warning of an impending global water crisis. By 2025 the UN agency notes, some 1.8 billion people will be living in areas of the world suffering from water scarcity.
Already today, 1.1 billion people across the globe don’t have access to adequate clean water supplies to meet just the most basic of daily needs, according to the FAO’s reckoning, while 2.6 billion do not have proper sanitation,. In the last century water use grew at more than twice the rate of overall population growth.
Water’s Hard To Find In The Desert
In a brilliant piece of analysis, the FAO points out that “Water shortages are most acute in the driest areas of the world” … wow, that's quite an insight. But even discounting this shrewd bit of reasoning, the issue of global water scarcity is becoming high-profile enough, that private enterprise is spending big dollars to search for solutions.
Roughly 70% of fresh water demand comes from the global agricultural sector – and farming demand swallows closer to 90% of fresh water supplies in lesser-developed nations. Therefore, improved farming practices are a high priority to help avert water shortages going forward.
And rapid industrialization, especially in emerging nations is putting a double-edged strain on water supplies.
Globalization Strains Water Supplies
First, growing emerging economies typically experience a coincident trend toward rapid urbanization. In fact, the rural share of China’s population has already dropped to 60% today, down from about 80% in 1980.
That’s about 260 million new urban apartment dwellers in China that lack the ability to fetch their own water from the local well or river, so vast municipal water supplies must be secured to satisfy their needs. And the trend toward urbanization in China, and many other emerging nations, continues to accelerate.
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Second, pollution of fresh water lakes and rivers becomes an increasing problem in rapidly industrializing nations too. Fertilizer run-off from massive agricultural projects, chemical spills, and other contaminants threaten to foul water supplies in both the developing – and developed world.
Water is a commodity just like oil, corn, or uranium … and one that’s likewise growing scarcer by the day. And just like any other commodity – when demand exceeds supply – there’s an investment profit to be earned by someone.
Wall Street’s Water Solution
In fact, and entire sub-sector of privately funded companies are springing up to address this issue. And for investors who are thirsty for alternative investment ideas, there’s even an Exchange Traded Fund (ETF) that lets you tap into the growing profit potential in this sector: PowerShares Water Resources Portfolio (PHO – AMEX).
This innovative ETF tracks the return of the Palisades Water Index, which includes companies in the business of developing, securing and maintaining global water supplies. These firms include: pump and filter manufacturers, water utilities and irrigation equipment manufacturers, to name a few. The ETF has a 54% weighting in the industrial sector (manufacturers of water-treatment and other related gear) and 29% in water utilities.
There are 42 individual stocks held in the PHO portfolio, including several American Depository Recipts (ADRs) of foreign-based companies. The ETF has total net assets of US$1.4 billion, and PHO shares gained 23% in 2006, compared to a return of 15.8% for the S&P 500 Index.
Finally, although this ETF began trading just over one-year ago, its average daily trading volume is strong at about 470,000 shares per day over the past three months – which means that PHO is sufficiently … liquid – for investors with an interest in the water resource sector!
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