The debate around commodity investing tends be centered around a few controversial or flashy resources, such as crude oil, natural gas, gold, or wheat. However, a crucial, yet often overlooked resource is water.
While it may cover most of the globe and comprise a large portion of our body, water isn’t easy to invest in. Short of storing bottles of water hoping for an emergency or buying water futures contracts, the average investor doesn’t have a lot of avenues for investing in water.
There is one exchange-traded fund (ETF) option in the Canadian market that does provide exposure to water though, albeit through holding water companies. Let’s take a look at the bull case for water investing and check this ETF out.
Why invest in water?
The way I see it, at the heart of the investment case for water is the fundamental supply-demand dynamic. The demand for water, driven by rising global population and agricultural needs, is intensifying, while climate change and pollution exert increasing pressure on the finite supply. This simple imbalance sets the stage for water-related investments to appreciate over time.
Beyond their growth potential, water stocks — particularly those in the utility sector — also offer the promise of stability during turbulent times. Unlike many other industries, water utilities tend to show lower volatility during recessions. After all, water is an essential, inelastic commodity that remains in demand, regardless of economic conditions. Investors can, therefore, look to these stocks as a potential harbour in the storm during economic downturns.
Finally, the global need for water infrastructure improvement and expansion is enormous, creating a burgeoning market for companies in this space. Such infrastructure spending can act as a shield against inflation; as prices rise, so too does the value of the tangible assets that these companies hold or produce. For investors, this can offer a layer of protection against the eroding effects of inflation.
Why use an ETF?
Yet navigating the waters (pun intended) of this investment theme can be complex. That’s where water ETFs come into play.
By offering a diversified portfolio of water stocks, ETFs can mitigate company-specific risks and provide a broader exposure to the entire water supply chain. They offer a convenient, transparent, and accessible instrument for harnessing the potential of this essential resource.
The ETF on my radar today is iShares Global Water Index ETF (TSX:CWW). Trading at around $50 a share at the time of writing, this ETF tracks the S&P Global Water Index, which comprises 50 global water industry companies, including utilities, infrastructure companies, equipment, and materials companies.
CWW currently pays a modest 12-month trailing dividend yield of 1.47% and charges a 0.66% expense ratio. This ETF can be a great way of adding a water-themed spin to a portfolio of Canadian dividend stocks (and The Fool has some great picks down below!)
