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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers