Water stocks are equities that are closely associated to the irrigation, utilities, water treatment, or other water-related industries. Individual firms’ stocks can be purchased, or a mutual fund or ETF with a large exposure to water stocks can be purchased.
Is it possible to buy water futures?
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).
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.
How do I go about purchasing water stocks?
Water stocks are equities that are closely associated to the irrigation, utilities, water treatment, or other water-related industries. Individual firms’ stocks can be purchased, or a mutual fund or ETF with a large exposure to water stocks can be purchased.
Is it possible to trade water futures?
Water futures began trading on the United States (US) futures market in December 2020. Water has joined the ranks of other commodities like oil and gold. The announcement comes as 2020 is predicted to be one of the warmest years on record, with water scarcity one of the consequences of rising temperatures. But what does this indicate in terms of water’s future?
WATER IN THE FUTURES MARKET
To begin with, water itself is not available for sale in California; rather, water futures are. California, sometimes known as “the Golden State,” is the largest agricultural market in the United States, and catastrophic droughts and wildfires have put its land at risk and exacerbated the problem of water shortages in the previous decade. Farmers, institutions, and hedge funds will be able to buy or sell water at a set price at a certain time in the future through water futures contracts.
These water futures can be traded on the CME Group (Chicago Mercantile Exchange), one of the world’s largest derivatives marketplaces, with reference to the spot price established by the Nasdaq Veles California Water Index (NQH2O Index). The NQH2O Index, which was launched in October 2018, tracks water prices across California and indicates the value of water per acre-foot, which is roughly comparable to more than 1,2 million litres.
The goal is to increase transparency and monitor the market price of water, as well as to assist water users in managing the financial risks associated with droughts. As a result, water futures would allow farmers to hedge against price increases while also improving water management.
However, there are many questions about whether contracts will truly aid in bettering control and reducing financial risk. Water futures contracts are the first of their sort, unlike earlier futures contracts for fundamental commodities like rice or corn. Physical distribution of water for contract settlement is not permitted under Californian law. Furthermore, compared to other commodities, water has a more unique and localized nature. Its cost varies according to location and water rights. It can only be found in a few locations, cannot be harvested, and is more tightly regulated than other commodities.
These qualities, as well as present legislation and the asset’s localized nature, make it difficult to trade.
Because of the peculiarity of water, many specialists have already warned against the perils of contracts. Former head of Europe at the FIA (Futures Industry Association), Simon Puleston Jones, has raised his concerns about potential financial market manipulation that might drive the price higher. “We need to consider the direct and indirect negative repercussions of seeing water as an asset rather than a resource right now,” he said.
THE THREATS OF TRADING IN WATER
The notion of clean drinking water has been recognized as a human right by the United Nations (UN) General Assembly – the international organization’s main organ – and the Human Rights Council (OHCHR) – the UN’s body to defend human rights – since 2010. The organization has already raised concerns about the risks of bringing water futures to the futures market, citing the fact that it jeopardizes humanity’s most valuable resource and human right. “Water cannot be valued in the same way that other commodities can.” Water is a public good that belongs to everyone. It is inextricably linked to all of our lives and livelihoods, and it is a critical component of public health,” said Pedro Arrojo-Agudo, Special Rapporteur on the human right to safe drinking water and sanitation.
The skepticism is reasonable, given the possibility of financial manipulation by introducing speculators who may inflate the price. “It’s crucial to remember that hedgers and speculators are inextricably linked. “If you took one away, there would be no market,” Tim McCourt, CME’s global head of stock index, stated. Water is becoming increasingly scarce, with scarcity currently a severe issue and the price of water likely to rise in the future years. It will only be available to a restricted group of people, such as large-scale agricultural and industrial producers, who will be able to purchase it in the near future. The economy’s most marginalized and vulnerable sectors will be put at danger. “Water has a set of vital values for our society that market logic does not understand and, as a result, cannot manage adequately, let alone in a financial arena so prone to speculation,” Arrojo-Agudo continues. The entire issue has the potential to spark water wars. Such battles are expected to occur in the next 50 to 100 years, according to researchers.
As the effects of climate change become increasingly apparent, the following years will determine the destiny of water and our world. As a result, governments must ensure and implement safeguards to protect our natural resources, particularly water, which is the most important natural resource on our planet for humanity. We can’t treat water like any other commodity; we can’t leave it exposed to financial speculation by those who want to profit from it. We cannot survive without water; it must be conserved and made available to everybody.
Is it a smart idea to invest in water?
Water is a valuable commodity used across the economy since it is a limited resource with a finite quantity. Investing in water-related companies or index funds that invest in them can help investors take advantage of the expanding trends in water renewal, conservation, treatment, and purification.
How can I make water investments like Michael Burry?
Another simple approach to invest in Water like Michael Burry is to buy an Index fund or an ETF that tracks Water stocks (Exchange Traded Fund).
Is it wise to invest in water ETFs?
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.
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.
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 industry, but what else are they doing to help mitigate or improve the global water situation? They can have a lot of clout as a large corporation.
Brown: One of the most exciting topics right now, especially in the United States, is desalination. You have an aging population that is moving into arid areas, particularly in the southwestern United States. And there isn’t enough water to go around. As a result, we’ve concentrated on companies like Veolia, which construct the plants. However, there are some issues. 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.