This year’s World Water Day theme, ‘Glacier Preservation’, focuses on the critical role glaciers play in global water systems and the urgent need to address their rapid decline due to climate change.
Glaciers are critical to life – their meltwater is essential for drinking water, agriculture, industry, clean energy production and healthy ecosystems. Yet, their rapid melting disrupts water flows, leading to issues such as flooding, rising sea levels, and damage to infrastructure. The 2023 State of Global Water Resources report revealed a record loss of 600 gigatons of glacier water in 2023 – the largest measurement in 50 years.
This alarming trend opens opportunities for investments in utilities, infrastructure, and technology that increase the supply and reliability of safe freshwater. These investment opportunities can come in the form of funds or stocks tied to water-related activities.
How to invest in water in Europe
In Europe, we identified 60 water-focused open-ended funds and ETFs, managing $34bn in assets, up 70% compared to five years. Assets peaked at $42.5bn in 2021 before declining to today’s level due to outflows and mixed performance amid subdued industrial activity and high interest rates.
Europe’s range of water-themed funds is diverse, with the top nine products holding more than $1bn in assets and 12 of the largest 15 using active strategies. These funds tend to favour US and growth companies, with European exposure averaging 12%.
Also read: M&G’s Praveg Patil: Bridging the water gap
So, where might one begin when looking to invest in water? Most European water funds consider issues relating to drinking water, sanitation and hygiene, as well as water use efficiency and waste disposal, as core elements of securities selection.
Pictet Water, an Article 9 fund, is the largest European water strategy, with $8.6bn in assets. It invests globally in companies providing water services, technology or environmental services. BNP Paribas Aqua, also an Article 9 strategy with $7bn in assets, focuses on firms that generate at least 20% of their revenue or capital from the water sector, including infrastructure for water supply, treatment and utilities.
Over the past three years, the 15 largest European water funds returned 3.5% annualised, on par with a global mid-small cap growth benchmark. In 2024, however, average performance was poor (2.2% versus 12.1% for the benchmark). Levying an average fee of 1.4%, European water funds can be expensive. Although, they remain in line with their thematic European peers.
Of the 60 water funds available to European investors, eight focus on the emerging ‘blue economy’ theme. The blue economy relates to the exploitation, preservation and regeneration of the marine environment. DWS Concept ESG Blue Economy, the largest of the group, invests in two types of companies: transitioning companies seeking to mitigate their impacts on ocean resources, and companies that provide solutions for the conservation of ocean ecosystems.
On the other hand, the recently-launched Fidelity Blue Transition Bond fund focuses on issuers that use bond proceeds to finance projects that benefit ocean-related sustainability (including blue bonds), and companies improving water-related risks and the impact of climate change on the ocean.
Top water stocks
Beyond funds, there are an array of equities contributing to the blue agenda that an investor may wish to consider.Looking under the hood of the 60 European water funds, there are four broad company categories.
- Water utilities provide clean drinking water and wastewater management. American Water Works is a top pick for water funds, operating as a regulated utility in 14 US states. Another favourite is Veolia Environment, serving residential, commercial and industrial sectors across all stages of the water cycle, including treatment, recycling and infrastructure design.
- Water machinery includes companies providing special equipment for water extraction, transportation and distribution. Xylem, held by 33 European water portfolios, is a global leader in water solutions, offering equipment for water extraction, transport, testing, treatment and efficient use across utility, industrial, commercial and residential sectors.
- Water technologies are offered by companies that improve treatment, purification and measurement of water. Ecolab, for example, focuses on cleaning and sanitation products for the hospitality, healthcare and industrial sectors.
- Miscellaneous companies have little to no exposure to the water industry but may be considered leaders in water efficiency. Swiss company Geberit specialises in the design and production of sanitary products and has consistently strived to reduce water consumption and improve waste-water treatment during the ceramics production phase.
The future of water investment
While water funds have exhibited mixed performance in recent years, the fundamental drivers behind them remain intact. The growing global population and rising living standards in developing countries are increasing the demand for clean drinking water and water for agriculture and manufacturing. At the same time, climate change threatens freshwater supplies, making efficient water management more critical than ever.
For investors seeking long-term growth, water funds may offer a strategic way to tap into this essential and increasingly valuable resource. But they are not the only way to get exposure to water. Investors can also take a look at sustainable infrastructure funds, environmental services funds or diversified sustainable funds in the mid-cap blend or mid-cap growth categories or the global small/mid-stock category.
