The Rising Tide of Water Infrastructure: A Information for Strategic Buyers


By David Snowball

Each day, Individuals depend on 2.2 million miles of growing older water pipes, some laid earlier than the Civil Conflict, to ship life’s most important useful resource. This huge community is crumbling beneath our toes, requiring over $2 trillion in repairs and upgrades by 2043. But this infrastructure disaster isn’t nearly fixing what’s damaged – it’s about constructing for a future the place three-quarters of Earth’s land plenty have gotten completely drier and excessive climate occasions are the brand new regular.

For traders, this convergence of pressing infrastructure wants and local weather adaptation creates each duty and alternative. However with choices starting from targeted water ETFs to broader infrastructure funds, making the precise selection isn’t easy. This information will assist you to navigate the panorama of water infrastructure investing, weighing each the compelling case for sector-specific funding and the sensible challenges that include it.

The Volker Alliance estimates that the states already face an estimated backlog of almost $1 trillion for deferred upkeep and wanted upgrades to public infrastructure. In January 2025, “Not Constructed for This: The Argument for Infrastructure Investing in an Unstable Local weather” highlighted the case for infrastructure investments in your portfolio and the infrastructure funds, each open-end and exchange-traded, that is likely to be value consideration. WABAC, a member of the MFO dialogue neighborhood, argued that “any dialogue of recent opportunistic infrastructure funds is incomplete with out mentioning water funds. Begin with PHO or FIW in case you are H2O curious. There are international water funds, however they’ve confronted rougher sledding over the previous three years. You could possibly begin with PIO and TBLU. I’m not sensible sufficient to think about how they could carry out within the tariff regime promised by our new president.” Since I take our board members’ insights severely, we’re providing this addendum on water infrastructure investing for you.

Water infrastructure contains ingesting water, wastewater, and stormwater providers. There are two drivers of demand for funding in water infrastructure. First, we’ve allowed our present infrastructure to deteriorate. The American Society of Civil Engineers estimates that US water infrastructure wants, specifically, are big:

In 2024 alone, the projected hole between water infrastructure wants and spending in america might be $91 billion; by 2043, the cumulative hole might be over $2 trillion. (Bridging the Hole: The Energy of Funding in Water, Could 2024)

By their calculation, totally funding water infrastructure wants would generate “a $4.5 trillion acquire in GDP, the creation of 800,000 new jobs, and a $2,000 annual improve in family earnings.” Water funding automobiles allow participation in a sector the place each $1 million invested creates 10–15 jobs whereas addressing existential local weather dangers

Second, water-related infrastructure investments have gotten more and more essential as local weather instability intensifies water shortage, flooding, and ecosystem degradation. A sobering report launched in December 2024 finds that “human-driven local weather change is resulting in a everlasting state of elevated dryness on 77.6% of the Earth’s land plenty, a gradual desiccation that has been taking part in out over the 30-year interval from 1990 to 2020” (“Three-Quarters of the Earth Has Gotten Completely Drier,” Time, 12/10/2024 reporting on the UN Conference to Fight Desertification, The International Risk of Drying Lands, 12/2024). This isn’t discussing drought, which is non permanent. It’s documenting a everlasting change within the water cycle. Within the US, the arid zone is transferring relentlessly eastward “without end” in line with scientists from Colorado State and the College of Michigan. Aridification is threatening meals safety, whereas excessive rainfall occasions are rising in frequency and depth. These tendencies will not be hypothetical, they’re occurring now, they usually demand sensible options. Investing in water infrastructure is about adapting to those realities, no matter their trigger. It’s about defending communities, economies, and the setting from the challenges we already face.

Infrastructure investments help local weather resilience via improved water administration programs, sustainable applied sciences, and pure infrastructure options like watershed restoration. Monetary devices like water-focused mutual funds and ETFs supply traders publicity to this important sector whereas contributing to long-term environmental stability.

Position in Local weather Resilience 

Water infrastructure investments handle three key local weather challenges: 

  1. Adaptation: Supporting applied sciences like sensible water programs and desalination vegetation
  2. Danger Mitigation: Restoring floodplains and wetlands to cut back catastrophe impacts
  3. Sustainability: Funding utilities and firms enhancing water effectivity and recycling

These investments align with international priorities to modernize growing older programs. Two questions stay:

  1. Does it make any sense to put money into a water fund, versus a broader infrastructure fund?
  2. If it does make sense for you, which choices may align along with your objectives?

Selecting broad or slender

Every part above helps investing in water assets, which undeniably profit from long-term tailwinds. Nevertheless, there are two components of a case in opposition to them.

First, traders misuse thematic funds. Jeff Ptak is the newest in an extended line of Morningstar analysts to evaluate the efficiency of thematic / sector funds as a bunch. Mr. Ptak checked out two metrics: (1) the timing of investor strikes into thematic funds and (2) the efficiency of these funds over the three years ending November 30, 2024. The outcomes weren’t fairly:

What I discovered is that, over these three years, the typical greenback invested in thematic funds misplaced round 7% per yr. Even once you take away the biggest thematic fund―ARK Innovation ETF, which famously soared, gathered billions in property, after which fell like a stone―these funds nonetheless misplaced virtually 6% per yr in dollar-weighted phrases. To place that in perspective, the S&P 500 gained greater than 11% per yr over that span. (“What Does it Value to Be Entertained By Your Investments? Strive 14% a Yr,” Morningstar.com, 1/15/2025)

The issues had been manifold: the funds’ efficiency sucked, they cost loads and traders mistimed purchases. We, as a bunch, purchased funds in areas that the analysts (and shills) had been hyping. Ptak’s suggestion: if you wish to put money into a sector fund, choose the world that Wall Avenue has written off for lifeless. With annualized returns, for the water funds beneath, -2.5% to three.2% over the previous three years, perhaps water qualifies?

Second, broader funds may get you there with much less fuss. Water funds are inclined to concentrate on smaller, high-growth corporations which generally don’t pay dividends. Which means they are typically extra unstable and, therefore extra prone to scare off traders than the typical fairness. Different locations the place water investments lie, albeit in restricted amount, are infrastructure and utilities funds. The common infrastructure fund presents 5-15% publicity to water infrastructure investments. The common utility fund is about 3% “pure” water and 22% diversified utility corporations which might doubtless have water infrastructure of their portfolios.

5-year snapshot, three peer teams, and three prime performers

The water group consists of the water-centered funds and ETFs beneath, whereas infrastructure and utilities are Lipper peer teams. Inside every group, we picked our top-ranked Nice Owl fund or greatest performer to assist reply the query, how good can it get?

 APRMax lossCommonplace devSharpe RatioUlcer IndexSP500 Seize RatioExpense ratioYield
Water group8.3-29.620.20.2912.20.810.760.9
Infrastructure group4.0-24.718.80.0910.10.760.832.6
Utilities group6.2-21.418.50.208.80.821.163.7
Invesco Water Assets11.8-24.720.30.469.80.910.590.5
GlobalX US Infrastructure18.6-30.225.90.638.41.00.470.5
Virtus Reeves Utilities ETF11.6-18.219.30.476.81.10.491.5

Collectively, water funds outperformed each infrastructure and utilities, however with considerably extra volatility (measured by the funds’ most drawdown over the interval and by their normal deviation). In risk-adjusted phrases, the image is muddled: water had the next Sharpe ratio (which is nice) but in addition the next Ulcer Index (which is unhealthy, with increased Ulcer rankings translating to deeper and longer drawdowns therefore extra ulcers). Utilities predictably threw off more money.

Selecting a water fund

We used the MFO Premium screener to establish all funds and ETFs older than three years with “water” of their names (then threw out those the place Water was simply a part of the advisor’s title).

  Expense Ratio5-Yr ReturnAUM ($M)Key Focus AreasUS PublicityWhole Holdings + Prime Holdings
First Belief Water ETFFIW0.53%12.01,776Passively managed, tracks ISE Clear Edge Water Index, U.S. water tools & utilities, small-midcap border, progress, 5 stars9036 shares: Waters Corp, IDEX, Agilent Tech
Invesco Water Assets ETFPHO0.60%11.82131Passively managed, monitoring NASDAQ OMX US Water index, midcap progress, 5 star9438 shares : Ecolab, Roper Applied sciences, Ferguson Ent.
Tortoise International Water ETFTBLU0.40%8.055Actively managed, ESG focus, midcap progress/core border, 4 star4341 shares: Veolia, Geberit, Veralto
Invesco S&P International Water ETFCGW0.57%7.5888Passively managed, S&P International Water Index, international utilities & infrastructure, midcap progress, 4 star5763 shares: Xylem, American Water, Veralto
Calvert International WaterCFWAX1.24%6.8530Passively managed, tracks International Water Analysis Index, ESG-aligned water stewardship, midcap core, 4 star48112 shares: Pentair, Ecolab, Zurn Elway Water Options
Virtus Duff & Phelps WaterAWTAX1.226.4578Pursues “water applied sciences to handle the worldwide water disaster,” therefore ESG attuned, high quality targeted, midcap progress, 4 star6451 shares: Xylem, Severn Trent, United Utilities Group
Invesco International Water ETFPIO0.755.9255Passively managed, tracks NASDAQ OMX International Water Index of worldwide water-related corporations, midcap progress, three star, no insider funding5438 shares: Ecolab, Roper, Pentair
Constancy Water SustainabilityFLOWX0.93%n/a105“Sustainability” targets corporations that improve efficiencies, lengthen life cycles or develop new water tech, therefore ESG screened, midcap progress, three star, modest insider funding66%35 shares: Pentair, United Utilities, Severn Trent PLC

Constancy Water Sustainability doesn’t but have a five-year report however has considerably outperformed the S&P International Water index of the previous 1- and 3-year durations.

  • FLOWX emerges as a top-tier actively managed fund, providing robust returns, ESG alignment, and international diversification. It will be a compelling selection for traders prioritizing sustainability and keen to pay barely increased charges for lively administration.
  • PHO and FIW stay the leaders when it comes to uncooked efficiency and cost-efficiency, making them ideally suited for traders in search of low-cost, U.S.-focused publicity to the water sector. (Which WABAC already tipped us off to.)
  • CFWAX and EBLU proceed to be robust ESG-focused choices, however FLOWX’s barely increased returns and comparable risk-adjusted efficiency make it a aggressive various.
  • AWTAX and PIO stay stable selections for international publicity, although they lag barely behind in efficiency in comparison with FLOWX and the U.S.-focused ETFs. It’s laborious to mission what impact Mr. Trump’s varied impulsive rulings may have on international traders.

Backside Line

When deciding on water-oriented funds, you will want to think about components comparable to administration model (lively vs. passive), geographic focus, and ESG alignment. Actively managed funds like FLOWX may supply increased returns however include increased charges, whereas passively managed ETFs like PHO and FIW present cost-effective publicity to the water sector.

In conclusion, water-related mutual funds and ETFs play a vital position in infrastructure portfolios, providing resilience, progress potential, and alignment with sustainability objectives. As local weather instability continues to form international markets, these investments present a compelling alternative to handle one of the crucial urgent challenges of our time.

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