"H2O Woes"-Water As An Investment Option
Thursday, November 02, 2006SUSIE GHARIB: Like oil and gold and grains, water is a commodity. Yet unlike those others, people who want to invest in water have had few places to do it. Now, that is beginning to change. As we wrap up our special series "H2O Woes," Jeff Yastine looks at how Wall Street is waking up to the possibilities of investing in water.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: You can trade all kinds of commodity futures from the pits in New York and Chicago. And as yet, there is no contract for water futures. But that hasn't limited the rising tide ofinterest for investing in water.
DEBRA COY, SR. VP, JANNEY MONTGOMERY SCOTT: I would say its the biggest change I have seen in -- following this industry for probably 10-plus years, is the huge increased level of interest from the investor community, both retail and institutional. And I think retail investors are driven primarily by, you know, what they read in the newspaper about water shortages, the need for water infrastructure investment. And, you know, water is the oil of the 21st Century. And, you know, all of those things have drawn retail interest.
YASTINE: Analysts like Debra Coy say a key moment for water investors occurred two years ago, when General Electric (GE), the bluest of blue chips, announced the purchase of Ionics, a major player in water purification and wastewater treatment.
COY: That has brought it to the attention of everyone. When a company like GE and its CEO says, water is one of our core platforms or key platforms for the future, that makes people sit up and take notice. Because it is a relatively small piece of GE's business, but it has been a strategic focus of theirs. And so I think it has generated a lot of investor interest about what did they see in the market that -- you know, that we should be looking at?
YASTINE: Since then, water investing has become a mainstream event, with one water-based exchange-traded fund opening its doors to investor cash. There is even a water index created by the online options market, International Securities Exchange (ISE).
BRUCE GOLDBERG, INTERNATIONAL SECURITIES EXCHANGE HOLDINGS INC.: We have seen more companies, both internationally and within the United States, that are becoming active in this industry as opportunities come for them to grow, as demand grows for different aspects of water. If you have greater need for filtration, you will create more filtration companies. They will grow as business grows.
YASTINE: Analysts say there are a number of themes water investors are looking at these days. One is consolidation, as some cities in recent years decide to privatize their municipal water systems. A second is in water treatment, with new technologies for filtering and purifying water. And a third is infrastructure: the plants, pipes and valves to move water from place to place.
PETER GLEICK, CO-FOUNDER & PRES., PACIFIC INSTITUTE: As populations grow, the pressure to find more and more high quality, reliable water also grows, and it becomes more and more expensive. But in addition, we are increasinglycontaminating the water that we have with agricultural waste, with human waste, with industrial wastes, and we have to spend more and more to ensure that the water that comes out of our taps is high quality and is safe enough to drink and to do the other things we want to do with it.
YASTINE: Analysts caution that water investors need to take a long-term view. The industry is growing, but at a moderate pace, 6 to 7 percent a year. On the other hand, water is something that people, businesses, and municipalities need, no matter what the rest of the economy is doing.
Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
