can you invest in water?

can you invest in water?

this film is on Netflix. it’s calledThe Big Short. you may have watched it. some of the biggest Hollywood stars — Christian Bale, Ryan Gosling and Brad Pitt — play prominent roles in it.

if you’ve watched it closely, Bale’s character, Michael Burry, says something interesting. “fresh, clean water cannot be taken for granted. and it is not — water is political, and litigious.”

why is Burry so important? well, he is best known for predicting the 2008 subprime crisis. not just predicting it, he made a lot of money by predicting its fall. Burry is an important character to monitor. and what’s Burry’s current favourite asset? Water.

post the financial crisis Burry has been buying water and farmland assets. while he may have shorted the housing bubble, he sees a lot of value in these assets and wants to own them before they get expensive. 

why water?

any commodity which has a finite supply becomes more valuable as it gradually becomes scarce. and there are very few things more valuable than water on our planet.

almost 71% of the Earth’s surface is covered in water but less than 1% of it is fresh water. increasing population and climate change risks are only going to make it an even scarcer commodity. like Burry, Wall Street has started to take water investing more seriously.

last year, the CME Group launched futures contracts which are tied to the spot price of water. these contracts are structured to allow investors, farmers and municipalities to hedge against or bet on the future price of water and are tied to the $1.1 billion California spot water market.

wait, you can trade water futures?

just like gold, crude oil and other commodities, water can now be traded on the market. but unlike other commodity based futures like oil and grain, investors won’t be delivering tonnes of water once the contract expires. the settlement will only be financially.

there are other ways to invest in water as well.

one can invest in a water exchange traded fund (ETF) like the S&P Global Water Index. it tracks 50 companies from around the world that are involved in water related businesses. or the NASDAQ OMX Global Water Index, which tracks the performance of companies worldwide that are creating products that conserve and purify water for homes, businesses and industries.

then one could also look out for individual companies, such as utility companies or water treatment plants. 

water isn’t mentioned often when it comes to discussing investment portfolios, but the scarcity of this resource due to climate change will make it important, eventually.