Wall Street Eyes Water Utilities

Are water utilities a wise investment decision?

A group of financial experts who oversee a $407 million fund are making that bet. 

Specifically, the Calvert Global Water Fund is placing its bets on four different types of companies in the water sector. "These include companies increasing the water supply through desalination or irrigation; those decreasing demand through plumbing or leak detection; companies improving water quality; and those expanding or fixing pipes and pumps," Reuters reported.

The fund makes investments "in the water-related resource sectors and companies include: water treatment, engineering, filtration, environmental controls, water related equipment, water and wastewater services, and water utilities," Calvert Investments explains. 

Some analysts say water funds have proved lucrative over the last five years. 

The Street reported that water exchange-traded funds "have been delivering solid results by investing in water utilities as well as producers of pumps, filters and wastewater treatments. During the past five years, First Trust ISE Water Index (FIW) returned 6.4% annually, compared to 5.0% for the S&P 500, according to Morningstar."

"Managers of winning funds say the group has thrived because water companies have been growing faster than the overall economy. The portfolio companies of PowerShares Water Resources (PHO) have been increasing earnings at a 12.1% annual rate. Managers say that the growth is poised to continue," the report said. 

The need for water infrastructure investment makes water funds a seemingly good bet, according to The Street. 

"The earnings are likely to continue climbing in the U.S. because demand for water grows every year. Since many pipelines and pumping stations are ancient, municipalities and corporations must invest in new equipment. The EPA estimates that the country will have to spend more than $300 billion on infrastructure in the next three decades to maintain the flow of water," the report said. 

In an infrastructure report card, the American Society of Engineers explained the need for water investment like this: "There are an estimated 240,000 water main breaks per year in the United States. Assuming every pipe would need to be replaced, the cost over the coming decades could reach more than $1 trillion, according to the American Water Works Association (AWWA)." 

The financial world often overlooks the water sector, according to Reuters. 

"Water is the world's most abundant commodity. But for investors it tends to be a wash out," Reuters reported. "That disconnect struck the team behind the Calvert Global Water Fund as a potential source of profits."

Matthew Sheldon, a co-manager of the Calvert portfolio, said he has his eye on the long game. 

"When we started looking into it, we realized that this is a trend that will be around for not just the next several years but several decades," he said in the article.

That makes him part of a small group of investors focused on the water market. 

"Few other funds are focusing on this market, even as the World Bank estimates that global population growth will require the world's water supplies to grow by about half by 2050," the report said. 

"There are only five water-focused mutual funds and exchange traded funds, including the Calvert fund, according to Lipper data. When hedge funds are included, total invested assets focused solely on water amount to less than $10 billion," the report said, citing analysts.

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