Water Please, Not Coke!

Atlanta, Georgia, HQ for soft-drink giant Coca-Cola, made the headlines a few days ago for something that’s a harbinger of things to come for all cities around the world. It’s about to run out of water, literally. In fact, unless the city takes drastic action - read mandatory rationing - it may run out of potable water in a matter of months! Here’s the soundbite from Carol Couch, the director of the Environmental Protection Agency (EPA) Division in Georgia: “Without any intervention, we are likely to run out of water in three months." Well, that was about a month ago so…sure you know what I’m thinking.

Guess what? Georgia is not alone. Cities all over the Southeastern US are sounding the same alarm about the dearth of freshwater resources due to a sustained drought. Have you heard the one about Florida butting heads with Alabama and Georgia over Florida’s desperate attempt to draw water from a shared river basin?

Dry, Dry, West

Oh, don’t even talk about California and the dry, dry, west. They already have voluntary rationing in Long Beach, and the last I heard, city officials say they may have to go mandatory to wake people up. The Colorado River, which is the lifeblood of the Southwest, is drying up and with it freshwater supplies for millions of west coasters in California, Arizona, Nevada, Texas, and Utah.

Water War I

Wait a minute. This is not just an American problem. Egypt is ready to go to war with Sudan and Ethiopia over the River Nile. The Jordan River basin remains a flashpoint because it serves Israel, Palestine, Jordan, Syria, and Lebanon. The Chinese are fretting about how they’re going to meet the water needs of 1.5 billion people in 2050 and the UN says “tensions and disagreements over water are erupting along the Mekong River in Indochina as well as around the Aral Sea in Eastern Europe.” Many analysts have for years been predicting the next World War will be over water. That’s a scary thought.

Planet Saltwater

Okay, so you get the picture. Whether or not it’s global warming the world is facing acute water shortages. Therefore, as an individual investor how can you make money from the impeding water crisis. Well, remember Samuel Taylor Coleridge famous complaint that “Water, water everywhere, nor any drop to drink."

You see, the world is running out of freshwater supplies but we’re not running out of water. Actually, water covers about 97% of the earth’s surface. The only problem is that the bulk of this is saltwater, and around the world now, there are companies investing billions of dollars to make this saltwater potable for human consumption. You’d be wise to invest in these companies not now but right now.

Play it Safe

This “water services” space, which comprises companies that provide potable water, water treatment and other technologies and services related to water consumption, is poised for phenomenal growth. Companies that stand to benefit from this growth range from well-known names like GE (US) and Suez (France) to smaller companies from India, China, South Korea, Brazil, and so on.

The water services industry is primarily a high-growth, small to medium-cap space so it is better to play it through an index fund or Exchange-traded Fund (ETF), which are baskets of individual stocks of companies involved in similar businesses. It is too risky to play the sector with a single stock, say, GE, for two reasons. First, most of the companies do not derive all of their revenue from water services. Therefore, you’d be getting too much of what you don’t want with a single stock play. Second, the industry is very capital-intensive so you don’t want to put your money in just one firm in case it goes bust.

There are about four or five ETFs focused on the water industry but the manager personally is invested in the PowerShares Global Water Portfolio ETF (PIO), which currently holds 40 international stocks that generate at least 50% of their revenue from water or water-related services. PIO currently is the most international of the ETFs. Companies are added or removed from this fund regularly (rebalanced) to make sure they all meet the minimum 50% revenue requirement and thus remain focused on water services.

So talk to your broker or investment adviser about water. Invest in water now so when mandatory rationing comes to a town near you, it would not feel so bad to go without a shower for a couple of days!