Water Water Everywhere, but Not a Drop to Spare

Conventional wisdom tells us that the safest investments are in commodities that people can't live without. Clean water fits the bill, yet in many places in the world, clean water is still not available.

Mar 24, 2014 at 2:55PM

Clean water is a commodity taken for granted by many. In many parts of the world, clean water is not so easy to come by, and many charities and worldwide organizations devote their time and funds to making sure this human necessity is available in these places. According to the World Health Organization 768 million people don't have an improved water source for drinking, and 185 million people still rely on surface water for daily needs. If you're looking for a good social cause for investment, your cup runneth over!

The astute Foolish investor can capitalize on this basic human need by investing in an ETF totally dedicated to water resources. Today's drought conditions in California may intensify focus on water in the short term, but in the long term, the ever-increasing population will also accelerate water demand. 

An ETF that fits the bill
PowerShares Water Resources (NYSEMKT:PHO) is heavily concentrated in U.S. and North American industrials that create products to purify and preserve potable water. 90% of this fund's assets are invested in common stocks and ADRs (American Depository Receipts) of companies that comprise the NASDAQ OMX U.S. Water Index. The performance of this fund over a one-year period shows that it is closely tied to this index.

Source: Invesco

The one-year performance of both the index and this fund are sharply higher than the three- and five-year performance, which this Fool believes is indicative of the increased focus on water as well as the well-publicized California drought. 

PHO holdings
The holdings of this fund are allocated as 67.05% industrials, 17.85% utilities, 8.64% health care, 4.62% information technology, and 1.83% materials. The allocation toward industrials provides the future growth potential of this fund as new and more technologically savvy methods of water purification are developed.

One of the top holdings is a company called Xylem (NYSE:XYL),  which is a major supplier for water treatment plants of pump systems, controllers, waste water treatment equipment, and analytical equipment. Xylem's products are sold in 150 countries, and includes products for desalination and water reuse as well as public utility-type equipment (meaning drought conditions will enhance demand). This stock beat earnings estimates in February and raised its dividend by 10%. Its pumps were used to pump flood waters out of New York City tunnels during Hurricane Sandy.  

Another large holding is aptly named Waters Corp (NYSE:WAT), a large Massachusetts-based analytical instrumentation and software company whose products are used to analyze the safety of drinking water by looking at the amount of pesticides, endocrine disruptors, pharmaceuticals, and other harmful chemicals present.  Waters is the top player in the $3 billion liquid chromatography space -- a technique long used by chemist to determine composition of liquids and impurity counts. 

Long-term outlook
Although some may argue that these results are just a "splash in the pan" (to intentionally mix my metaphors), I believe that water gains are as sustainable as the flow of water each company strives to create. Why? First, the population is increasing at an alarming rate, which intensifies the need for potable drinking water as well as the need for water for crops and manufacturing uses.

Second, meteorologists are warning that super storms will become more frequent in the coming years; each super storm has created urgent need for drinking water, as well as water pumping and purification equipment. Last but not least, focus upon the quality of our drinking water has led a public outcry for better quality drinking water not only in America, but in many other civilized countries as well.

Invest in something everyone needs and will never stop needing, and you should have a winner. 

Boost your 2014 returns with The Motley Fool's top stock
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Brenda Johnson has a long position on PHO. The Motley Fool recommends Moody's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information