For the past few years, starting with the column, "As Basic as Water," I've written about the issue of global economic activity increasing at a faster rate than existing water supplies can accommodate, and opined that if this issue was not addressed it would result in a crisis.
On the domestic front, I've focused on the potential for the drought in California to become a catalyst for growing awareness and seriousness with the situation. As I have noted, however, investors have consistently exhibited disinterest in the subject or its implications.
The general consensus by investors has been that droughts come and go, and specifically to California and the West Coast, that the stop-gap would be groundwater until the snow and rain returned and filled up Lake Mead and Lake Powell again.
A few things have occurred in the past year, though, that appear to be making the issue finally resonate with investors. In June 2014, the U.K. Ministry of Ministry of Defence published, "Global Strategic Trends ¿ Out to 2045" in which water is referenced twice as often as oil, at 141 times vs. oil at 73.
And last November. the University of Victoria published a study that claimed that only 6% of groundwater reserves may be replenished, after being depleted, within the span of a human lifetime. This is a direct contradiction to the long-held assumption that groundwater reserves are a renewable part of the natural capital base.
According to the study, once tapped and depleted in response to a drought, reserves will not only fail to be quickly replaced but are properly considered nonrenewable. This is especially important in California now that groundwater reserves are being used to make up for the water not available due to drought.
Still, even as evidence has been mounting that current water issues are not transitory in the U.S. or globally -- and are in fact increasing -- investors interest in the subject has been largely absent.
This can be best illustrated by the performance of the four global water ETFs I track, all of which are down or unchanged over the last two years:
PowerShares Water Resources (PHO) is off by 14%, PowerShares Global Water (PIO) is down 10%, Guggenheim S&P Global Water (CGW) is sideways, and First Trust ISE Water (FIW) is up by 2%. In the last three months, however, these ETFs are up 20%, 16%, 16%, and 28%, respectively, although I can't discern any substantive change that warrants the new interest.
This may be akin to what I referenced last May with respect to gold and gold miners. Even though gold had declined to its rolling long-term real return of 0% by then, the miners continued to decline throughout the year and eventually went to all-time record discounts to the metal, as I noted last December.
Shortly thereafter, investors became aware of the nonsensical discount the miners were trading at, and as gold began to rise the Market Vectors Gold Miners ETF (GDX) surged, and is now up 70% year to date.
I don't know if the new found interest in water resources will continue in the immediate future but for investors looking for a long-term hold vehicle the macro narrative for water investing is still in its early phase and should last for at least 10 years -- and most probably much longer.
For those interested in investing in individual companies, names I've referenced in earlier columns have performed similar to the ETFs, including Veolia Environnement (VEOEY), Israel Chemicals (ICL), American States Water (AWR), California Water Service (CWT), American Water Works (AWK) and Consolidated Water (CWCO).