The water and wastewater utilities group is one of Calvert Investments' top three themes, as is water infrastructure and water technologies. "We think technology companies are poised to deliver once these products reach scale, particularly in metering and filtration," says Lily Donge, Calvert's manager for environment and climate change.
Among the holdings in the Calvert Global Water fund is Kurita Water Industries, a Japanese maker of reverse-osmosis seawater distillation equipment that's expected to see growing demand in Asia. In addition, Kurita has developed a wastewater treatment system using a microorganism called anammox bacteria to break down wastewater sludge.
For many people, desalination is the sexy poster child for solving the world's water crisis. Stick a pipe into the ocean, suck up seawater, remove salt and impurities, and voilà--fresh water. Still, even though desalination technologies are progressing, it remains a costly and energy-intensive process. Nor is there a single company, or group of companies, waiting to corner the market.
"Each desalination plant is different, depending on the location and salinity of the water," says Sweeney. "You don't buy the desalination plant; you buy the makers of membranes, pumps and different chemicals for pre- and post-treatment."
Sweeney suggests investing in desalination through a company such as Tetra Tech, a Pasadena, Calif.-based engineering outfit involved in designing and building desalination plants, among a host of other water-related businesses.
Ryan Connors, an analyst with Boenning & Scattergood, believes the five most compelling water subsectors are metering, desalination, irrigation, conveyance and distribution infrastructure.
Of the desalination companies, Connors likes Energy Recovery Inc., a San Leandro, Calif., company that makes the PX Pressure Exchanger, a rotary device that recovers energy from the waste stream of seawater reverse osmosis systems and helps desalination plants use significantly less energy.
Irrigation is a big theme given the notorious inefficiency of standard irrigation systems. "Traditional flood irrigation systems lose 40% of their water to evaporation," Connors says. His top pick in that field is Lindsay Corp., the Omaha, Neb.-based maker of center pivot irrigation systems that greatly reduce water waste. Connors believes Lindsay could benefit from the increased mechanization of farming in the emerging markets.
One of Connors' top recommendations is Badger Meter Inc., which stands to benefit from the growing water-metering trend in the U.S. Only about half of U.S. households are metered for their water use, but the market opportunity will grow as more communities become concerned about water scarcity, and particularly as more Americans migrate to the dry Southwest and the drought-stricken South. Automated meter reading technologies from the likes of Milwaukee-based Badger currently have just 25% of the meter market share, but they are gaining momentum.
Go With The Flow
Water always flows, but the recent lack of credit flows has stalled some massive water projects either on the books or in the works, causing many water-related companies to nosedive along with the rest of the markets during the downturn. The PFW Water fund, to take one proxy of the market's health, lost 23% in 2008 while the PowerShares Global Water fund dropped 46%. Through early May, performance in the small water funds universe ranged from a 5% loss to a 5% gain.