Can Trump Make Water Great Again?

Water thematics and the ETF trade.

Supposedly, we are getting an infrastructure spending bill passed under Donald Trump. When we do, it will be a huge lift for water utilities, writes Joseph Kane, senior research analyst with Brookings in a recently published report titled “Investing in Water: Comparing Utility Finances and Economic Concerns Across U.S. Cities.”

Water utilities, from fresh water delivery at your kitchen counter, to wastewater treatment, are facing investment shortfalls nationwide. Brookings estimates it to be around $655 billion needed in infrastructure improvements over the next 20 years. Distribution and transmission infrastructure—including aging pipes and water mains—continue to rank among the most serious drinking water needs, according to the U.S. Environmental Protection Agency.

How can investors play this theme?

Most people treat aquifers like all-you-can-eat buffets, say analysts from Energy & Capital in their Water Investing 101 report.  “Investments in companies that improve our retention and use of this priceless resource will grow in value,” report authors say.

For retail investors, investing in this theme is easiest if you invest in water utilities, the related infrastructure, and clean water technology. Higher net worth individuals can invest in water rich farmland or water rights.  Texas oil man T. Boone Pickens is big on this, and has been buying water rich land for at least a decade now.

For those investors who want to keep it simple, there’s the Claymore S&P Global Water Index (CGW 50,93 -0,45 -0,88%) ETF. See holdings here.  CGW has traded in line with the S&P 500, though is nowhere near as overbought as the S&P 500.  Over the last 12 months, it’s up 13.84%, beating the gold (+2.2%).  Looked at over a longer term, the water fund is up 44.75% since March 2, 2012 while the S&P 500 is up 73%. All other commodities are down. Oil is down (-78%) and gold is down (-30%).

Trump promised something like a trillion dollars in infrastructure spending. It is the one stimulus where he may be able to lure in some Democrats. Republicans have opposed any spending measures, and their zero-sum tax game has also put the breaks on Trump’s plan to cut the C-corp rate.  Investors shouldn’t get their hopes up in water infrastructure either. But if all goes swimmingly well, water will benefit from infrastructure build-out.

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