Climate change, drought conditions, an ever-expanding population, and growing demand for consumption have resulted in water scarcity in many parts of the world. As per United Nations, 1.8 billion people will be living in countries or regions with absolute water scarcity by 2025, and two-thirds of the world population could be under water stress.
The International Food Policy Research Institute expects that there will be a 40% gap between water demand and supply over the next 15 years. Wastewater runoff from agriculture, industry, and expanding cities, especially in developing nations, is another major issue. Recycling wastewater could ease global water shortages while protecting the environment.
Notably, about 70% of total demand comes from agriculture whereas demand from industrial applications and domestic households account for about 20% and 10%, respectively. Given the scarcity of drinking water, both emerging markets and the U.S. have increased their spending on water and wastewater treatment equipment. As per Grand View Research, spending on global water and wastewater treatment is set to boom to $10341 billion by 2025 from $628 billion in 2015 (read: 3 Agricultural ETFs to Buy).
In fact, emerging markets account for half of the total infrastructure spending worldwide with China leading the way. The Chinese government expects to invest about $110 billion per year in environmental protection and pollution control, including wastewater and solid waste treatment over five years. President Donald Trump has proposed to invest in treatment systems to prevent problems caused by aging distribution lines like drinking-water contamination and has vowed to slash Clean Water Act regulations.
Given this, water could be an important growth industry and an excellent investing area as utility operators are putting their money in this corner to meet growing global demand for fresh water. Further, the Zacks Industry Rank confirms the room for upside in this industry as water utility has a solid rank in the top 30% at the time of writing. And investors’ thirst could easily be quenched by tapping this growing opportunity with our chosen ETFs and stocks.
ETFs in Focus
PowerShares Water Resources Portfolio (PHO - Free Report)
This fund provides exposure to U.S. water utility stocks that create products to conserve and purify water for homes, businesses and industries. It tracks the Nasdaq OMX US Water index and holds 38 securities in the basket with none accounting for more than 8.1% of assets. The fund has amassed $778.5 million in AUM and charges 61 bps a year in fees (read: Welcome Trump Era with These ETFs).
Guggenheim S&P Global Water Fund (CGW - Free Report)
This ETF provides global exposure by tracking the S&P Global Water Index. It holds 53 stocks in its basket with each holding less than 8.3% share. The fund has managed assets of $491.6 million and charges 64 bps in annual fees from investors. In terms of country exposure, American stocks make up for nearly 45.1% of assets closely followed by United Kingdom with 15% share.
PowerShares Global Water Portfolio (PIO - Free Report)
This product also offers global exposure and tracks the NASDAQ OMX Global Water Index. Holding 39 stocks in its basket, it is moderately concentrated across components with each holding under 8.5% share. From a country perspective, U.S. takes the top spot at 36.8% while United Kingdom, Switzerland and France round off the next three with a double-digit exposure each. PIO has AUM of $182.6 million and expense ratio of 0.75% (see: all the Industrial ETFs here).
Stocks in Focus
Artesian Resources Corporation
This Delaware-based company provides water, wastewater, and other services on the Delmarva Peninsula. The company has seen earnings estimates rising by three cents over the past 30 days for this year. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
SJW Corporation (SJW - Free Report)
This California-based company is engaged in the production, purchase, storage, purification, distribution, wholesale, and retail sale of water. It has seen solid earnings estimate revision of 8 cents over the past 30 days for this year and has a Zacks Rank #2 (Buy).
American Water Works (AWK - Free Report)
This New Jersey-based company provides water and wastewater services in the United States and Canada. The Zacks Consensus Estimate for 2018 has been revised up from $3.23 to $3.26 over the past 30 days. The stock has a Zacks Rank #3 (Hold).
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