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Latest analyses

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Water as a future investment

Water as a future investment

Water is the source of all life on earth. It is essential for all survival and without water we all languish and die. The importance of this commodity has recently gained momentum for the energy sector as well. As soon as we feel a shortage, the value increases, as with the shortage of semiconductors.

Not so long ago, we took water for granted with unlimited quantities. Today we see that was a mistake and the reduction of water on earth can affect almost every industry. Will water also be key in transforming the energy sector in times of crisis? What options do we have if we want to invest in this commodity?

The energy sector's dependence on water

We have experienced water scarcity in recent years due to climate change. As river levels have fallen, some power plants have had to deal with this problem. Without enough water, it is impossible to produce energy. Uniper has had to cut back on coal mining because of the lower level of the Rhine, and a Swiss nuclear power plant has had to reduce its output to prevent the river that cools it from reaching temperatures dangerous to marine life.

Norway also has a high dependence on water, and we could certainly find more examples of this. It is important to understand the dependence on water and the link with the energy sector, hence the discussion on security in the event of a water source failure. All of this shows that the value of water will increase in the coming years, so let us look at what investment opportunities this commodity offers us.

Investment opportunities

There are a number of "avenues" that we could take in the future to take advantage of possible increases in the price of water. The first is to buy shares in companies producing water-related equipment. We can invest in water companies and environmental companies. Another alternative is ETFs, which invest in companies involved in water treatment and purification, as well as water distribution. All of the above methods are so-called indirect investments.

Buying water directly as a commodity is not straightforward. The problem is to purchase water rights from a water source such as a river. Water rights are not standardised, as is the case, for example, in gold trading. They provide no intrinsic value and there is no active trading market for them. Here we can talk about the possibility of buying water futures, which as such is closest to direct investment.

American Water Works

American Water Works is often mentioned in connection with the purchase of shares aimed at investing in water. It is the largest publicly listed water company in the US. It has a market capitalization of USD 28.5 billion and since going public in 2008, the price per share, USD 21.50, has climbed to approximately USD 153 per share.* It focuses on providing clean drinking water and sewer services. But it is only one of many options on the market. To understand and properly select an investment focused on a scarce commodity, it is necessary to look closely at all the factors that could weigh in an investor's decision.

water

American Water Works' stock performance over the past 5 years. (Source: Investing)

* Past performance is no guarantee of future results.

The content of this material constitutes marketing communication and should not be considered as any type of investment advice and/or investment research and/or a solicitation for any transactions. This material was prepared for informational/educational purposes only and does not imply an obligation to perform investment transactions nor does it guarantee or predict future performance. BCM Begin Capital Markets Cy Ltd and its relevant persons including affiliates, agents, directors, or employees do not guarantee the accuracy, validity, timeliness, or completeness of any information/data provided by third parties and assume no liability for any loss arising from any investment made based on the said information/data. Past performance is no guarantee of future results.

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Profile photo of Lucia ┼Ż├írska

Chief Analyst at ProfitLevel

Lucia ┼Ż├írska

Co-founder of the Mafinn website where she educated the general public about different types of investments. As she says, investing can be clear, understandable and accessible to all, you just need to be aware of how to do it. For this reason she decided to pursue her next career into financial markets. As the chief analyst of the brokerage company ProfitLevel she focuses on this topic more deeply and specifically. At the same time she continues to write professional texts about capital markets for the print and online media, also for blogs.

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