How to Invest in Water With Stocks, ETFs, and Funds

Water is a fundamental global resource, essential for life, agriculture, and industry. Four billion people, approximately two-thirds of the world’s population, experience severe water scarcity for at least one month each year, underscoring the pressing need for sustainable water management. The increasing demand for clean water, coupled with environmental challenges and aging infrastructure, has drawn significant attention to the water sector as an area for investment, highlighting opportunities within companies addressing its supply, treatment, and conservation.

Investing in Water Utilities and Infrastructure

Water utilities are companies that deliver essential services, including public water supply, wastewater treatment, and distribution. Their operational models involve regulated service areas, which contributes to stable revenue streams. These entities provide services such as purifying water for consumption, collecting and treating sewage, and maintaining extensive networks of pipelines that transport water to homes and businesses.

Water infrastructure companies focus on designing, building, and maintaining the physical assets necessary for effective water management. This includes large-scale projects like pipelines, pumping stations, dams, reservoirs, and treatment plants. These projects are long-term endeavors that require ongoing maintenance and periodic upgrades to ensure reliable water delivery and sanitation systems.

The business characteristics of water utilities and infrastructure companies are defined by their essential service nature. They operate within established regulatory frameworks that provide revenue predictability. This essential service provision can enable consistent dividends for investors, as demand for water remains relatively inelastic. Their operations involve long-term contracts for construction or service provision, contributing to a stable operational environment.

Investing in Water Technology and Conservation

The water technology sector encompasses companies developing innovative solutions for water management, quality enhancement, and resource efficiency. This includes advanced water treatment processes such as desalination, which converts saltwater into potable water, and sophisticated filtration and purification systems. Other technological advancements involve smart water systems, which utilize sensors, data analytics, and artificial intelligence for applications like leak detection, smart metering, and optimizing water usage. These innovations address challenges, including the presence of micropollutants and the need for more efficient water reuse.

Companies focused on water conservation create technologies and services designed to reduce overall water consumption and promote sustainable practices. This involves developing improved irrigation efficiency systems for agriculture, which accounts for approximately 70% of global freshwater withdrawals. Innovations in this area also extend to green infrastructure solutions, such as permeable pavements and bioswales, which manage stormwater sustainably and enhance water quality in urban environments. These entities emphasize research and development, seeking to bring new solutions to market that address global water challenges.

The business models in water technology and conservation are driven by innovation. Companies in this space invest significantly in research to develop novel products and services that improve water quality, reduce waste, and enhance management efficiency. Their potential for growth is linked to their ability to provide solutions for increasing water scarcity and pollution concerns. These companies play a role in advancing sustainable water practices across various sectors, from industrial applications to agricultural and municipal uses.

Accessible Investment Approaches

Individuals seeking to invest in the water sector can utilize several practical financial instruments. One approach is purchasing individual stocks, which represents direct ownership in a specific water utility, infrastructure, technology, or conservation company. Buying stocks involves opening a brokerage account, which can be done through various online platforms. Once an account is funded, investors can place orders to buy shares of publicly traded companies.

Exchange-Traded Funds (ETFs) offer a diversified way to invest in the water sector. An ETF is a pooled investment vehicle that holds a basket of securities, such as stocks of water-related companies, and trades like a stock on an exchange throughout the day. Water-focused ETFs include companies spanning both the utility/infrastructure and technology/conservation segments. Investors can research these ETFs based on their holdings, expense ratios, and historical performance, then purchase shares through a standard brokerage account. ETFs have lower expense ratios than actively managed mutual funds, with average equity ETF expense ratios around 0.14% in 2024.

Mutual funds provide another accessible investment option, pooling money from many investors to invest in a professionally managed portfolio of water-related companies. Unlike ETFs, mutual funds are priced once daily at the close of the market, based on their net asset value (NAV). Investors buy and sell mutual fund shares directly from the fund company or through a brokerage. While mutual funds can be actively or passively managed, they have higher expense ratios compared to passive ETFs, with average equity mutual fund expense ratios around 0.40% in 2024.

When investing in stocks, ETFs, or mutual funds, investors should consider the tax implications. Profits from selling an investment are subject to capital gains tax. Short-term capital gains are taxed at ordinary income tax rates, while long-term capital gains are taxed at lower rates. Dividends received are taxed as either ordinary or qualified dividends. Brokerage accounts may also have various fees, though many online brokers offer commission-free trading for stocks and ETFs.