Water Commodity Investment Guide For Indians

Water is a precious commodity and, with increasing scarcity, it can be a lucrative investment opportunity. Water is essential for life and, with a growing global population, the pressure on water resources is only going to increase. This means that investing in water-related companies and funds can be a good long-term strategy. There are several ways to invest in water, including buying shares in water companies, investing in water utilities, and trading water-related stocks and ETFs. Water utilities, in particular, tend to be stable and less volatile, making them attractive to long-term investors. However, investing in water also comes with risks, including legal, regulatory and demand issues.

Invest in water-related stocks, such as American Water Works Company (AWK) and Aqua America (WTR)

Water is a precious and scarce resource, and investing in water-related stocks is a way to gain exposure to this commodity. Two water-related stocks that investors can consider are American Water Works Company (AWK) and Aqua America (WTR).

American Water Works Company (AWK)

American Water Works Company is the largest investor-owned water and wastewater utility company in the US. It serves approximately 3.5 million customers in 16 states, providing water and wastewater services to residential, commercial, and industrial customers. The company operates predominantly in regulated markets, with its non-regulated business providing water services to military bases under long-term contracts.

Aqua America (WTR)

Aqua America, now known as Essential Utilities Inc., operates regulated utilities that provide water, wastewater, or natural gas services in the United States. The company offers water services through operating and maintenance contracts with municipal authorities and other parties. It serves approximately 5.5 million customers in several states, including Pennsylvania, Ohio, Texas, Illinois, and North Carolina, under the Aqua and Peoples brands.

Investing in Water-Related Stocks

When investing in water-related stocks, it is important to consider the companies' business operations, financial performance, and growth prospects. Investors can purchase stocks directly or through dividend reinvestment plans offered by larger firms. Additionally, ETFs, mutual funds, and unit investment trusts (UITs) provide diversified exposure to water-related stocks, such as the Invesco Water Resource Portfolio ETF (PHO) and the iShares U.S. Utilities ETF (IDU).

Water-related stocks offer investors an opportunity to gain exposure to the water industry and benefit from the increasing importance of water as a scarce resource. By investing in these stocks, individuals can contribute to their financial goals while also supporting companies that provide essential water-related services.

Invest in water rights and charge for access

Water is a precious resource and is only going to become scarcer. As such, investing in water can be a lucrative move. There are several ways to invest in water, one of which is by investing in water rights.

Water rights give investors access to water from "clean water" sources like lakes, groundwater, and rivers. Once you have the right to use the water, you can charge companies and governments (including farms, towns, and cities) for access to the water covered in your investment contract.

Water rights investing websites like waterrightexchange.com or waterbank.com can guide you through the process of investing in water rights. However, it is important to note that water rights are regulated by the government at the federal, state, and local levels, which can make water investing more complicated than investing in traditional stocks and commodities.

Before investing in water rights, it is crucial to consult with a knowledgeable attorney familiar with land and water contracts to protect your rights.

Additionally, when investing in water rights in India, it is important to consider the country's water governance model. India has a plural governance model with provincial water statutes, and new state-issued permits provide quasi-property rights to permit holders. However, the relationship between these permits and underlying land ownership-related groundwater and riparian rights is unclear.

Furthermore, as most water in India is over-allocated, reallocating water can be challenging due to the complex property rights system. Therefore, thorough research and understanding of the legal and regulatory landscape are essential before investing in water rights in India.

Invest in farmland with ample water quantities, such as almond farms or cattle farms

Water is a precious commodity, and with increasing scarcity, it is a good idea to invest in water-related assets and businesses. One way to do this is to invest in farmland with ample water quantities, such as almond farms or cattle farms.

Almond Farms

Almonds are a worldwide agricultural asset and are consumed globally. They have a long harvest season of over 240 days and can be preserved without refrigeration. The global almond market is expected to grow, with a projected CAGR of 4.47% and a total market size of $12.073 billion by 2025. California produces over 80% of the world's almond crop, and the demand for almonds is increasing due to their health benefits and adoption as a dietary solution.

Investing in almond farms can be a profitable venture. While it may be challenging due to the unique needs and high cost of quality farmland, the returns can be significant. A single acre of perfect almond farmland can cost between $5,000 and $6,000, but the same acre, once developed for almond production, can bring in returns of $20,000 to $30,000 per acre.

Cattle Farms

Cattle farming, specifically dairy, is another area of investment with significant potential in India. The demand for dairy products in India has seen an inflection point in the last five to seven years, and the nature of demand is changing. Consumers are increasingly demanding more dairy products beyond liquid milk, such as packed curd, flavoured milk, cheese, and butter. Additionally, there is a growing demand for good quality, pure, and unadulterated milk, which often comes at a premium price.

The emergence of "cattle aggregation" models in rural and semi-urban India is transforming the way milk is produced, collected, processed, transported, and marketed. These models aim to improve the efficiency of the supply chain and enhance the quality standards of products and services.

Investing in cattle farms requires careful consideration of various components, including choosing the right breeds, managing their health and hygiene, and technical veterinarian expertise. The initial investment required to start a cattle farm with a herd size of 20-50 cattle is around Rs 2-3 crore, excluding the cost of land.

Both almond farms and cattle farms offer opportunities for investors to capitalise on the growing demand for water-related commodities. By investing in farmland with ample water quantities, investors can diversify their portfolios and take advantage of the increasing scarcity and demand for water-intensive products.

Invest in water ETFs, such as Invesco Water Resources ETF (PHO) or Invesco S&P Global Water ETF (CGW)

Water ETFs are a great way to gain exposure to the water industry and add significant diversification to your portfolio. Here's a detailed look at two of the top-performing water exchange-traded funds:

Invesco Water Resources ETF (PHO)

The Invesco Water Resources ETF is designed to track the NASDAQ OMX US Water Index, which includes US-listed companies that create products for purifying and conserving water for businesses, homes, and industries. The fund has a mix of value and growth stocks, with a focus on machinery companies and water utilities. It has an inception date of December 6, 2005, and an expense ratio of 0.59%. As of September 6, 2022, the one-year trailing total return was -16.6%, and the fund had assets under management of $1.7 billion. The top three holdings of PHO are Xylem Inc., Danaher Corp., and Ecolab Inc.

Invesco S&P Global Water Index ETF (CGW)

The Invesco S&P Global Water Index ETF is a multi-cap blended fund that tracks the S&P Global Water Index, which includes companies from developed markets in the water utilities, infrastructure, equipment, instruments, and materials sectors. Over 89% of CGW's portfolio is allocated to industrial and utilities companies. The fund has an inception date of May 14, 2007, and an expense ratio of 0.57%. As of September 6, 2022, the one-year trailing total return was -23.7%, and the fund had assets under management of $928.7 million. The top three holdings of CGW are American Water Works Company Inc., Xylem Inc., and Essential Utilities.

Both of these ETFs provide a great opportunity to invest in water-related securities and gain exposure to companies involved in the treatment, purification, and distribution of water. It is important to note that water ETFs have historically underperformed the broader market, and there are risks involved with investing in ETFs, including the possible loss of money.

Invest in water utilities, which tend to have few local competitors

Water utilities are a good investment option as they are a bedrock for communities around the world. They provide a measure of diversification to a portfolio because people and businesses will need water regardless of the economic climate.

American Water Works (AWK) is one of the largest water utility stocks. It is the country's largest water utility and, like other utilities, it benefits from being a regulated monopoly, meaning it doesn't face competition in the regions where it operates. In exchange, its prices are regulated by state and local governments.

York Water Company (YORW) is the oldest investor-owned water utility in the U.S. It sources, purifies, and distributes drinking water within three counties in south-central Pennsylvania. It also owns two wastewater collection systems and five wastewater collection and treatment facilities.

Essential Utilities (WTRG) is a water and natural gas utility that serves about 5 million people. It started as a utility in southeastern Pennsylvania and has grown into a presence across 10 states. About half of its revenue comes from water, and the other half from natural gas.

American States Water Company (AWR) is a diversified utility company with several subsidiaries and three segments, including water, electric, and contracted services. As of the end of 2022, the company's regulated utilities had 263,265 water customers and 24,656 electric customers. It also has a number of military contracts.

Middlesex Water Company (MSEX) is a water and wastewater utility in New Jersey and Delaware with approximately 117,000 customers across the two states. Its revenue has grown slowly over the past six years, increasing from $132.9 million in 2016 to $162.4 million in 2022.

These water utility companies tend to have few local competitors, making them a good investment option for those looking to invest in the water commodity in India.

Frequently asked questions