Last year, the Chicago Mercantile Exchange launched the world’s first water futures market, allowing farmers, investors, governments, and hedge funds to purchase a legal agreement known as a “futures contract” that locks in a predetermined price for water to be used in the future. If a natural disaster, such as a drought, raises the price, the contract seller must make up the difference (and vice versa if the price falls).
Can I put money into water futures?
There are a variety of methods to get involved in the water sector, and investors should think about the elements that influence each of these investment vehicles.
Because most traders only have access to a few futures markets, such as CME’s Nasdaq Veles California Water Index Futures (NQH2O), shares or ETFs are the most practical option to obtain exposure.
However, while they pay high dividends and are low-risk, they have a lower potential upside than companies that make water collection and treatment equipment.
Energy Demand In Growing Agricultural Economies
Many fast-growing regions, such as China, India, Brazil, and countries in the Middle East and Africa, will have tremendous food and energy needs in the years ahead.
Is it possible to trade water on the stock exchange?
Water has joined the ranks of gold, oil, and other commodities traded on Wall Street, as concerns about its future availability grow. The first of its type in the United States, the Chicago Mercantile Exchange opened a water trade market with $1.1 billion in contracts related to California water prices. Farmers, hedge funds, and municipalities have been able to hedge against future water shortages in California because to this market. The new program was launched in October 2020 in response to the region’s extreme heat, wildfires, and droughts. While treating water as a marketable commodity may reduce price uncertainty, it also places essential human rights in the hands of financial organizations and investors.
Is it possible to invest in water as a commodity?
Water, like gold and oil, is a commodity that is becoming increasingly scarce. Water scarcity, like any other scarcity, presents investment opportunities.
Is it wise to invest in water stocks?
One of the most basic requirements of human life is water. Water is essential to life as we know it. Water may be the most precious commodity on the planet for this reason alone.
It’s only natural that investors think about buying water stocks. Water utilities, for example, are one type of company that can provide investors with exposure to the water industry. Water filtration is a business that a few other firms are in.
In total, we’ve developed a list of over 50 stocks involved in the water industry. Five of the most popular water-related exchange-traded funds were used to compile the list:
By clicking on the link below, you can get a spreadsheet containing all 57 water stocks (along with important indicators like price-to-earnings ratios and dividend yields):
Invest in individual water stocks
You would acquire shares of a specific firm, such as American Waterworks, Inc., The Danaher Corp., or PepsiCo, if you wanted to invest in individual water stocks.
Individual stock investments can help you earn higher profits, but they also come with a higher level of risk.
Because the stock market is so volatile, investing in individual equities can result in substantial gains and losses.
This strategy is suitable for those who have a high risk tolerance and can afford to ride out market swings.
Invest in ETFs
A professionally managed exchange-traded fund (ETF) is a portfolio of stocks, bonds, and other securities.
An ETF can contain dozens, if not hundreds, of different investment kinds, allowing you to diversify your portfolio.
For example, the Invesco S&P Global Water Index ETF (CGW) allows you to invest in a variety of water utility, technology, and bottling companies all at once.
ETFs are generally considered to be a safer investing option. There’s less risk of a single corporation ruining your investment if you diversify your investments.
ETFs typically have lower returns than individual stocks. Investing in ETFs may be a better option if you are risk averse.
Do water ETFs exist?
The Most Important Takeaways In the past year, water exchange-traded funds (ETFs) have lagged the broader market. CGW, EBLU, and FIW are the water ETFs with the best one-year trailing total returns. American Water Works Co. is the top holding of these ETFs.
Do water reserves increase during a drought?
Drought can bring boom or disaster for individuals with a financial stake in water, depending on the investment. Even if there isn’t a specialized market for trading water, there are a variety of methods to invest in it, from purchasing land with water rights to purchasing stocks in water-dependent industries to municipal bonds.
Is it ethical to invest in water?
Experts are warning of “peak water,” future water shortages that many see as an economic opportunity, just as the world’s oil output may be reaching its limit. However, profiting from water can be a moral minefield. Laurent Belsie of The Monitor sat down with Chris Brown, chief investment strategist and portfolio manager for Pax World Balanced Fund, and Eric Fernald of KLD Research & Analytics to talk about the challenges. The following are extracts from their chat, which have been edited for clarity:
Eric Fernald (Eric Fernald): Yes and no, I’d say. No, it has nothing to do with oil being a finite resource. It’s a sustainable resource. According to most estimations, we’ve barely used a third of our fresh-water capacity globally. With that said, there is a crisis…. These are crisis statistics when there are a billion people without access to clean water and 6,000 children die every day due to a lack of clean water, according to some estimates.
Chris Brown (CBS): From an investment standpoint, it’s a pretty exciting theme right now…. Over the next five years, China is expected to invest some $120 billion on water infrastructure. In fact, the United States has a lot of failing infrastructure, including pipelines that were installed in the 1950s and now need to be rebuilt. As a result, it’s all over the place. We’ve also concentrated on companies that deal with water infrastructure.
Fernald: The water-efficiency side is the low-hanging fruit, where corporations are working on technological advancements to improve.
Brown: For example, Emerson Electric is a fund holding, and they supply uninterruptible power sources and surge protectors, which enable wastewater treatment plants run more efficiently. As a result, it allows these facilities to operate at a high level of efficiency. Companies that create valves and pumps are also interesting to me, and they are probably the least controversial of the companies out there.
Fernald: You must exercise extreme caution and keep a close eye on your investments. On this topic, a number of high-profile NGO campaigns are currently underway. There have also been some high-profile incidents when firms have had to withdraw or lose contracts, the most well-known of which is Suez in Bolivia, which faced public protests after hiking the cost of water. South Africa is undergoing a battle that is remarkably comparable to the one in the United States.
Brown: We really need to look at these businesses and see if they’re more concerned with profits than with quality or service. Violations are what we’re looking at. Mismanagement of that is a problem, and as investors, we must pay attention to it and ensure that they are managing appropriately.
Brown: American Water Works and Aqua America are two companies that have met our environmental, social, and governance standards…. With these businesses, there is always room for discussion. Issues do arise, and we must communicate with the company. However, as a shareholder, you have a lot of clout when it comes to talking about issues.
Fernald: That’s probably the most talked-about problem in water right now, at least in the United States and, I believe, globally. Nestl, Pepsi, and Coca-Cola are all big market players. Ironically, right now in Massachusetts, there is a heated debate regarding water supplies and the topic of water privatization, with communities receiving the best possible price for their water. And, of course, there’s the usage of plastics and the plastic bottle, as well as the cost of disposal.
Brown: We do own PepsiCo, which has its own set of problems. Again, here is where the topic of being an ethical investor comes up. We start a conversation with companies like that to see what they’re doing to reduce this type of activity or environmental impact.
Fernald: Pepsi is an excellent example, in my opinion, because they’ve had a number of corporate efforts as well as a worldwide initiative, which only a major corporation like Pepsi can do. They recently joined with the Earth Institute at Columbia University, which is led by Jeffrey Sachs. They’ve also teamed up with H2O Africa, a non-profit organization dedicated to ensuring Africa’s water supply is sustainable…. I’ve also seen that they’ve recently won some honors for improving the usage of water in their industrial food-processing facilities. That’s the entire picture you need to consider. You must strike a balance. They work in the bottled-water sector, but what else are they doing to help reduce or improve the worldwide water situation? They might have a lot of clout as a major corporation.
Brown: One of the most exciting topics right now, especially in the United States, is desalination. You have an elderly population that is relocating into dry locations, particularly in the southwestern United States. And there isn’t enough water to go around. As a result, we’ve concentrated on corporations like Veolia, which construct the plants. However, there are some difficulties. There are difficulties with waste….how much energy does processing this water require?
Fernald: Four years ago, it seemed difficult to go wrong if you invested in a lot of the smaller solar companies. Water, one would imagine, offers some of those advantages as well. When I inquired about a smaller company, one of our analysts suggested Lindsay Corporation…. This is a corporation that uses irrigation technologies to make more efficient use of water. Technology that is quite exciting. Companies like that will be fascinating to investigate.
Is Michael Burry still making water investments?
Burry served as a neurology resident at Stanford Hospital and later as a pathology resident at Stanford Hospital after graduating from medical school.
After that, he went on to create his own hedge fund. He had previously established a name as an investor by proving success in value investing, which he discussed on the Silicon Investor message boards beginning in 1996. His stock recommendations were so effective that he drew the attention of corporations like Vanguard and White Mountains Insurance Group, as well as notable investors like Joel Greenblatt. Burry has a very traditional view of what is valuable. “All my stock selecting is 100 percent predicated on the concept of a margin of safety,” he has declared on several occasions, referring to Benjamin Graham and David Dodd’s 1934 book Security Analysis.
Burry founded Scion Capital, a hedge fund, with the help of an inheritance and family debts, after shutting down his website in November 2000. He called it after one of his favorite novels, Terry Brooks’ The Scions of Shannara (1990). For his investors, he immediately made tremendous gains. According to Michael Lewis, an author, “The S&P 500 lost 11.88 percent in his first full year, 2001. Scion’s stock was up 55%. At the pinnacle of the internet bubble, Burry was able to earn these profits by shorting expensive tech equities. The S&P 500 lost 22.1 percent the next year, while Scion rose 16 percent. The stock market finally turned around the next year, rising 28.69 percent, but Burry outperformed it by 50 percent. He was managing $600 million at the end of 2004 and turning money down.”
Burry began focusing on the subprime market in 2005. He correctly anticipated the real estate bubble will burst in 2007 based on his examination of mortgage lending patterns in 2003 and 2004. His research into residential real estate values convinced him that subprime mortgages, particularly those with “teaser” rates, and the bonds backed by these mortgages, would begin to lose value as soon as the original rates were replaced by much higher rates, which could happen as soon as two years after initiation. As a result of this determination, he decided to short the market by convincing Goldman Sachs and other financial firms to sell him credit default swaps against subprime loans that he believed were vulnerable.
Burry faced an investor revolt during his payments for the credit default swaps, with some investors in his fund claiming his projections were wrong and demanding their money back. Burry’s analysis eventually proved correct: he made a personal profit of $100 million and a profit of more than $700 million for his surviving investors. Between November 1, 2000 and June 2008, Scion Capital earned a total return of 489.34 percent (net of fees and expenditures). Over the same time period, the S&P 500, usually regarded as the benchmark for the US market, returned little under 3%, including dividends.
Burry liquidated his credit default swap short bets by April 2008, according to his website, and did not gain from the 2008 and 2009 bailouts. He then sold his company to concentrate on his personal investments.
Burry stated in a New York Times op-ed on April 3, 2010 that anyone who closely researched the financial markets in 2003, 2004 and 2005 might have detected the mounting risk in the subprime markets. He chastised federal authorities for ignoring warnings from outside a small group of experts.
Burry relaunched his hedge fund in 2013, this time under the name Scion Asset Management, and began submitting reports as an exempt reporting adviser (ERA) active in California and approved by the Securities and Exchange Commission. He’s spent a lot of time and money on water, gold, and farmland investments. He’s stated, “Water that is both fresh and clean cannot be taken for granted. And it isn’twater is a contentious and political issue.” “The modest investing he still conducts is entirely centered on one commodity: water,” a statement about Burry’s current interest says at the end of the 2015 biographical dramedy film The Big Short.
With 13Fs filed from the fourth quarter of 2015 to the third quarter of 2016, Glimpses was offered into Scion’s portfolio, as mandated by the SEC when a fund’s assets exceed $100 million. On February 14, 2019, Scion Asset Management filed a new 13F, revealing Burry’s ownership of a number of large-cap stocks and $103,528,000 in 13F assets under management, slightly beyond the reporting requirement. Burry claimed in an email to Bloomberg News in August 2019 that there was a bubble in huge US firm stocks because of the popularity of passive investing, which “has orphaned smaller value-type assets abroad.” Alphabet Inc. ($121 million) and Facebook ($24.4 million) were the fund’s top investments in 2020.
According to a now-deleted tweet, Burry began shorting Tesla before or around early December 2020, and likely increased his short holdings once Tesla’s market cap topped that of Facebook. Burry warned that Tesla’s stock would crash like the housing bubble, claiming that “my last Big Short got bigger and bigger and BIGGER” and taunting Tesla bulls to “enjoy it while it lasts.” He was alleged to own puts on over 800,000 Tesla shares in May 2021. He announced that he was no longer shorting Tesla’s shares in October 2021, following a 100 percent increase in its valuation. He disclosed holding puts on the ARKK ETF innovation index managed by Ark Invest for over 31 million dollars in the second quarter of 2021.
What is Michael Burry’s motivation for investing in water?
“What became evident to me is that investing in water through food is the best way to go. To put it another way, cultivate food in water-rich places and move it to water-scarce areas for sale. This is the least problematic approach for allocating water, and it can be profitable in the end, ensuring that the redistribution is long-term.”
Take, for example, the humble almond. Burry is betting on a nut that needs five litres of water per seed and is growing in popularity. They use 10% of the available agricultural water in California, where they cultivate 80% of the world’s almonds. So it makes logical and financial sense to produce almonds outside of drought-affected areas and transport them back in.
Companies are waking up to these new realities across the board. Diageo, a drinks company, reduced its water consumption by about 1 million cubic meters between 2013 and 2014, while Lafarge, a cement company, conducts risk assessments of its river basins in the locations where it operates. SABMiller, the brewer, has cut its water usage “Levi-Strauss, known for their jeans, now uses 96 percent less water than it did just a few years ago, reducing its “carbon footprint” by nearly 20 percent.