Industry Updates

Water ETFs make a splash as political tailwinds boost sector

One water ETF saw its AUM jump 49% in May

Jamie Gordon

a fish on a rock

Industry participants’ predictions on water ETFs at the start of the year are coming to fruition as investors and policymakers pour money into companies within the exposure.

In January, a survey conducted by Cerulli Associates found 92% of ETF issuers expect demand for water-themed ETFs to increase in the next 12 to 24 months.

In April, the iShares Global Water UCITS ETF (IH20) topped European thematic inflows with $75.2m new assets, according to data from Global X, which have a water ETF listed in the US.

Furthermore, the L&G Clean Water UCITS ETF (GLGG) – which was featured in ETF Stream’s five top thematic ETFs earlier this year – was the fastest-growing thematic ETF in percentage terms last month with its assets under management (AUM) jumping 49%.

This came as part of the continued trend in favour of sustainable and impact investments, which in May saw resource scarcity thematic ETFs pick up the pace with $192m inflows.

The recent progress also follows a recent pledge by US president Joe Biden, to spend $111bn on eliminating lead pipes and service lines across all states and modernising drinking water, wastewater and stormwater systems.

Infrastructure ETFs buoyed by Biden early-term spending

“In April, the US Senate passed the bipartisan $35bn Drinking Water and Wastewater Infrastructure Act of 2021 which seeks to improve water infrastructure across the country,” Andrew Little, cleantech and renewables themes research analyst at Global X, said.

“The bill still needs to go through the House of Representatives and pass through other legislative proceedings, but its positive bipartisan reception is encouraging and it is a good example of how developed markets could move the needle on this issue and potentially drive the clean water market’s growth.”

Alongside progress in developed markets, access to clean water is one of UN’s Sustainable Development Goals and remains a pressing issue in developing economies.

At present, 2.3 billion people live in water-stressed countries and 2.2 billion lack access to safely managed drinking water while 2% of global deaths each year are caused by diseases that can be attributed to dirty water, Little added.

To mitigate against contamination of already-stretched water resources, the implementation of new technological solutions is needed to protect sustainable extraction of freshwater from existing and previously untapped sources.

“Advances in filtration and disinfection are making clean water more universally attainable,” Little continued. “Upgraded and modernized distribution and storage infrastructure can limit water loss and improve quality, while wastewater collection and treatment are enabling water recycling and reuse.” 

Fabrizio Zumbo, associate director, European asset and wealth management research at Cerulli Associates, said the firm’s research shows this year’s most popular themes are expected to be linked to water, biotech and technology, as investors believe in the returns case behind potentially world-enhancing technologies.

The phrase ‘water is the new gold’ has been common over the past decade, referring to water’s importance to all life combined with the real possibility of a worldwide shortage,” Zumbo said.

He also noted the increasing appreciation of water within sustainable portfolios, adding COVID-19 created an opportunity for societies to think about building back into a more sustainable way of life.

On this, Ben Lavine, co-CIO at 3D/L Capital Management, said ESG investors need to continue expanding their focus, to incorporate companies targeting immediate human needs such as food, water and housing.

“Water investing represents a category of sustainable investing that receives less attention from ESG investors versus sexier categories such as green energy and battery technologies,” Lavine said. “It could be European investors are waking up to this reality, but also recognising real advancements (hence investment opportunities) are being achieved in this space.”